IMF slashes Philippine 2026 growth target to 3.4 percent

Weaker recovery, higher inflation seen in 2027

MANILA, Philippines — The International Monetary Fund (IMF) expects the Philippine economy to face a weaker recovery and more persistent inflation through 2027 as high oil and food prices, sluggish investment and delays in public infrastructure spending weigh on growth.

Following its 2026 Article IV mission, the IMF lowered its gross domestic product (GDP) growth forecasts for the Philippines to 3.4 percent this year from 3.9 percent previously and to 5.1 percent in 2027 from 5.5 percent.

GDP measures the total value of goods and services produced in the economy and is the broadest gauge of economic activity.

While the IMF slightly trimmed its 2026 inflation forecast to 5.6 percent from 5.7 percent, it sharply raised its projection for next year to 4.1 percent from 3.3 percent, suggesting price pressures could take longer to normalize.

IMF mission chief Andrea Pescatori said weaker-than-expected second-quarter growth accounted for much of the downgrade for this year. 

GDP growth slowed to 2.3 percent in the second quarter as public construction investment fell sharply following stricter reviews of infrastructure projects. Weaker business confidence, natural disasters and the lingering property sector slowdown also dragged on activity.

During a press briefing, Pescatori said the IMF had previously expected a stronger recovery in public investment during the second half of 2026, but this had not materialized as quickly as anticipated.

The outlook for next year was further affected by renewed tensions in the Middle East, higher oil and food prices and a slower rebound in public investment.

Inflation, meanwhile, is expected to remain elevated as higher global oil prices combine with risks to food supply from El Niño.

Pescatori said the IMF expects international rice prices to increase by around 20 to 25 percent under its baseline scenario.

Rice accounts for about 12 percent of the Philippine consumer basket, making movements in the staple particularly important for domestic inflation.

The impact of the Bangko Sentral ng Pilipinas (BSP)’s rate hikes will increasingly be felt next year because monetary policy typically affects inflation with a lag of about 12 months.

The IMF’s baseline assumes one additional 25-basis-point increase in the BSP policy rate.

However, Pescatori stressed that further tightening should remain dependent on incoming data.

“The BSP’s tightening has kept inflation expectations anchored and the current monetary policy stance is approximately neutral,” he said.

Further rate hikes should be considered if headline inflation remains elevated, second-round effects intensify or underlying inflation pressures strengthen, according to the IMF.

The IMF also projected the current account deficit to widen to 4.8 percent of GDP this year because of the higher oil import bill and the impact of El Niño on global rice prices. 

The multilateral lender also said systemic financial risks remained contained, with Philippine banks well capitalized, profitable and liquid.

Still, it flagged weakening asset quality in construction, rising leverage among large corporations and banks’ interconnectedness with conglomerates as areas that warrant close monitoring.

On property, Pescatori said the IMF did not see the sector as a major threat to growth, but noted that excess supply following the pre-pandemic construction boom continues to prevent it from becoming a meaningful growth engine.

“It’s going to take time,” he said, noting that higher interest rates could further delay a recovery in housing and property activity. 

The IMF said faster implementation of structural and governance reforms, stronger private investment and improvements in infrastructure and education would be necessary to lift the economy’s longer-term growth potential.