By Justine Irish D. Tabile, Senior Reporter | BusinessWorld

The Philippine economy's recovery next year will hinge on a rebound in public investment, although prolonged energy price shocks and climate-related disruptions such as the “Super El Niño” could derail growth, the World Bank said.

In an exclusive interview with BusinessWorld, World Bank Senior Country Economist for the Philippines Jaffar Al-Rikabi said the lender expects public investment to begin recovering in the fourth quarter — a turnaround that could help restore business and household confidence while stimulating private investment.

“Our outlook depends importantly on whether investment regains momentum and whether external shocks remain manageable,” he said.

The World Bank projects the Philippine economy to grow 5.2% in 2027 and 5.5% in 2028, after slowing to an expected 3.7% this year. The outlook is underpinned by a rebound in public investment and moderating inflation.

“We have this Philippine specific shock, which is around public investment,” Mr. Al-Rikabi said.

He noted that the slowdown in public investment had significantly affected economic growth this year, but the World Bank expects the recovery to begin in the fourth quarter. The Philippine economy expanded by 2.6% in the first half, held back by muted household consumption and a contraction in gross fixed capital formation. With the full-year expectation at 3.7%, the second half carries much the burden of acceleration — making fourth-quarter public spending figures an early checkpoint on whether the bank's investment-recovery assumption is holding.

“We think as the public investment comes online that can hopefully crowd in and bring in both private investment but also boost confidence more in the economy,” he said.

Mr. Al-Rikabi identified three main downside risks to the Philippine growth outlook: sustained external uncertainty and energy price shocks, climate-related disruptions that prove more severe than expected, and a failure of investment activity to recover as anticipated.

“Our baseline recovery rests on the assumptions that we should see moderating inflation,” he said, adding that improving business and household confidence, alongside stronger public and private investment, would also be crucial to the recovery.

Inflation, however, reaccelerated to 7.2% in September from 6.1% in August, ending four straight months of easing — an uptick that runs against the moderating path the bank's baseline recovery assumes. That lifted the nine-month average to 5.4%, leaving inflation above the Bangko Sentral ng Pilipinas' (BSP) 3% target for the seventh consecutive month. For 2026, the World Bank expects inflation to average 5.8% amid continued pressure from elevated energy prices.

“Another source of downside risk we highlight is related to climate-related disruption if these prove to be more severe than our baseline expectations,” Mr. Al-Rikabi said.

The warning comes as the current El Niño weather pattern is forecast to become the strongest ever, bringing drought, extreme heat and crop losses. The Philippine Atmospheric, Geophysical and Astronomical Services Administration (PAGASA) has said the El Niño could become “very strong” from now until December and persist through the first half of 2027.

World Bank Chief Economist for Asia Franziska Ohnsorge said the lender had taken El Niño into account to some extent in its baseline projections.

“We already have taken (this) into account to some extent in our baseline, but it could be much worse than we expect,” she told BusinessWorld.

Looking at past severe El Niño events, Ms. Ohnsorge said the weather pattern's effect on gross domestic product and inflation was not statistically significant. However, past severe episodes were associated with statistically significant declines in crop and fisheries production.

“What governments can do, of course, it can get ready… That includes preparing for big floods, that includes preparing for droughts,” Ms. Ohnsorge said. “But often the burden of the adjustment falls on the household, at least the immediate adjustment, falls on the individual household and the individual firm.”

The effects are already visible on the ground. As of Oct. 5, 106 cities and municipalities in Isabela, Cagayan, Camarines Norte, Dinagat Islands and Agusan del Sur had been placed under a state of calamity — a designation that lets affected local governments mobilize emergency funds — due to severe drought and dry conditions. The Department of Agriculture reported that 223,214 farmers in 14 regions have been affected by El Niño, with agricultural damage reaching P6.87 billion as of Sept. 26.

Against this backdrop, Mr. Al-Rikabi said public investment could help bring more climate-resilient infrastructure projects online.

“One of the reasons why we want to see public investment coming online is that there are priority projects related to climate resilience infrastructure,” he said. “So, the ones that have been cleared, reviewed, assessed as being the right projects in the right areas, being screened for efficient use of resources. We want to see those coming online as soon as possible.”

He also said social protection programs such as the Pantawid Pamilyang Pilipino Program (4Ps), the government's flagship conditional cash-transfer program, should target poor and near-poor households during shocks. About 27.7% of Filipinos are near poor, meaning they are one shock away from falling into poverty, and this group has a 10% chance of slipping into poverty, he said.

“You'd want social protection to target the poor and near poor through programs like the 4Ps, which is exactly what the government has done as a response to the energy shock,” Mr. Al-Rikabi said. “So, it's in a good place, we think, to react if necessary, if the El Niño proves to be far more damaging than our baseline assumptions.”

Source: BusinessWorld — Oil shocks, El Niño may threaten Philippine economic recovery in 2027 — World Bank