The Philippines will "definitely" miss its 2026 economic growth targets, according to WR Advisory Group, which cited persistently high inflation, weak foreign direct investment (FDI) inflows, and slowing economic activity.

"The Philippines will definitely miss the target," WR Advisory Group President and Chief Executive Officer Robin Michael U. Garcia said at Thursday's launch of the firm's pilot Philippine Political and Country Risk Report.

Mr. Garcia stressed that the report does not constitute a formal growth forecast. Even so, its assessment indicated that growth could hold at around the 2% level — or slip lower — in the remaining months of the year without a substantial increase in foreign investment and solutions to the country's persistent economic challenges.

The warning comes as gross domestic product growth slowed to 2.3% in the second quarter from 2.8% in the previous quarter, leaving first-half expansion at 2.6% — well below the government's revised full-year target of 3.5% to 4.5%. To reach even the lower end of that band, the economy would need a marked second-half acceleration.

The report also flagged a 33.4% decline in FDI net inflows through May and assigned economic growth risk a score of 12 out of 25, classified as "elevated" with a "deteriorating" outlook. FDI — long-term investment by foreign companies in local operations and assets — is widely used as a gauge of external confidence and a source of capital for business expansion and job creation.

Inflationary pressures have likewise constrained the ability of the Bangko Sentral ng Pilipinas (BSP) to support economic growth, raising the prospect of prolonged stagflation — a combination of elevated inflation and stagnant growth that leaves policymakers with few good options. "It cannot ease without risking a fresh inflation flare, and it cannot tighten further without deepening a slowdown that's already at a 16-year low outside the pandemic," the report said. WR Advisory Group noted that the central bank's limited policy options have narrowed the scope for measures to support growth.

More broadly, the Philippines received an overall country risk score of 10.375 out of 25, placing it in the "elevated" category with a "deteriorating" outlook. Of the eight categories assessed, four carried deteriorating outlooks: political stability, policy and regulatory risk, fiscal and sovereign risk, and economic growth risk.

Fiscal and sovereign risk was the only category rated "high," scoring 16 out of 25 amid mounting government debt and credit-rating pressures. National Government debt hit P19.07 trillion, or 66% of gross domestic product, at the end of June, while debt-service payments totaled P1.23 trillion in the first half. "Heavier government debt service competes with the private sector for the same pool of domestic credit," the report said, warning that this could push up business borrowing costs even if the BSP keeps interest rates unchanged.

Mr. Garcia said the deteriorating outlook poses significant risks to businesses, particularly those in the services industry and highly regulated sectors such as energy, mining, and banking. Services firms face mounting pressure from inflation and workers' demands for higher wages and additional benefits — a squeeze that could persist into 2027 if price pressures remain unresolved. Energy, mining, and banking companies, meanwhile, are particularly exposed to political and regulatory uncertainty given their reliance on legislation and government policy. "They're very sensitive to political changes because of what's being discussed in Congress and in the Senate. Or lack thereof," he said.

The report classified policy and regulatory risk as elevated, with a deteriorating outlook and a score of nine out of 25, citing slow legislative progress and uncertainty surrounding proposed reforms. Only one of the 52 priority measures identified by the Legislative-Executive Development Advisory Council (LEDAC) had been enacted, leaving businesses awaiting tax, energy, and other regulatory reforms.

Mr. Garcia also cautioned that changes in government leadership could disrupt policy continuity and complicate business planning, particularly for firms dependent on regulatory approvals. "The operating-cost environment has increased. There has to be more contingency into the planning because of the many things that can change the next few months," he said.

For prospective foreign investors, the deteriorating risk profile underscores the need to account for political and regulatory uncertainty before committing capital. "You can invest, but just know that there are risks," he said.

Mr. Garcia expects the overall risk environment to remain elevated through the rest of 2026 and potentially into 2027, as political competition intensifies ahead of the 2028 national elections, adding to uncertainty for businesses. Markers to watch in the interim include whether upcoming GDP data narrows the gap to the revised target band, how many of LEDAC's remaining 51 priority measures advance, and the direction of FDI inflows in future releases.

Reporting by Justine Irish D. Tabile for BusinessWorld. Source: BusinessWorld