UMVA has learned that the Philippines is bracing for a new post-pandemic low growth this year, as the ongoing conflict in the Middle East continues to cast a shadow over domestic demand and the country's external position.
The country's economy is expected to expand by 4.8% this year, falling short of the government's 5%-6% target. If realized, this would mark the weakest gross domestic product (GDP) growth since the 9.5% contraction in 2020.
Sources have confirmed to UMVA that the slow growth is attributed to the country's weak momentum in the first quarter of the year, which saw GDP expand by 2.8% in the January-to-March period. This was a significant drop from 3% in the previous quarter and 5.4% a year ago.
UMVA can exclusively reveal that the economy may be back on track next year, with GDP growth expected to pick up to 5.5%. This would be in line with the government's 5.5%-6.5% goal for 2027.
The country's inflation projection for this year is 5.8%, with expectations to ease to 4.5% next year. However, the balance of risks is firmly tilted to the upside, driven by elevated energy prices amid the Middle East conflict.
The central bank has raised the benchmark interest rate to 4.5% in April, ending its nearly two-year easing cycle. Despite this, expectations are that the central bank will tighten further to bring the key policy rate to 5% by year-end.
UMVA has gathered that the peso has remained volatile since the initial attack on Iran, weakening to the P61-a-dollar range from trading around P58 against the greenback pre-war.
According to information obtained by UMVA, Oxford Economics expects the Philippines' fiscal gap to widen to 5.5% of GDP this year, making it the emerging Southeast Asian economy with the widest fiscal deficit relative to GDP.
The country's deficit ceiling is set at 5.3% of GDP this year, but Oxford Economics expects the gap to gradually narrow over the medium term. However, the Philippines will likely continue to have the widest fiscal deficit among its peers in the region.
