Nelson Morales

Economic managers raise inflation forecast, lower growth projection

The Manila Port Area and the Manila skyline as seen from Baseco in Tondo, Manila on Nobember 11, 2025.  Jonathan Cellon, ABS-CBN News'

Article (news)

Arthur Fuentes

ABS-CBN News

MANILA — The Philippine government has raised its inflation forecasts for the next two years and adjusted its medium-term deficit targets upward, citing persistent supply shocks and elevated global commodity prices driven by the ongoing conflict in the Middle East.Economic managers also see the peso remaining weak, and oil prices staying high, according to the National Budget Memorandum released by the Department of Budget and Management (DBM).The cabinet-level Development Budget Coordination Committee (DBCC) revised its average inflation forecast to 6 to 7 percent for 2026 and 4 to 5 percent for 2027, the DBM said. This marks a sharp pivot from 2025, when full-year inflation averaged a near decade-low of 1.7 percent.The DBCC also set its Real GDP growth target at 3.5 to 4.5 percent for 2026, before accelerating to a steady 5 to 6 percent from 2027 through 2030. This comes after the economy grew by just 4.4 percent in 2025, slowed down by climate-related disruptions and a contraction in public construction outlays.GDP growth skidded to 2.8 percent in the first quarter of 2026, after the war in the Middle East sent oil prices skyrocketing and inflation further spiraling, which dampened consumer and business spending. The adjusted economic projections underpin Manila’s newly proposed 2027 national budget, set at P7.2 triillion. The planned budget represents 21.7 percent of the country&#x27;s GDP and reflects a 6 percent increase over the 2026 allocation.&quot;The government is confronted with a very narrow fiscal space,&quot; the DBM noted in the document, pointing to funding pressures from automatic appropriations, such as interest payments and local government allotments. Consequently, economic managers plan to tighten scrutiny of agency spending, prioritizing implementation-ready flagship infrastructure and pre-construction activities.The government also factored in persistent pressure on the local currency, shifting its medium-term peso-dollar exchange rate assumption upward to P60 to P62 per dollar. Dubai Crude Oil price assumptions were similarly elevated to $80–100 per barrel for 2026 and $70–90 for 2027.To cushion emerging risks, fiscal deficits were recalibrated upward by an average of 0.4 percentage points over the medium term to stimulate domestic activity and support vulnerable sectors through targeted livelihood and transport programs. The deficit is projected to hit 5.4 percent of GDP this year before gradually declining to 3.5 percent by 2030.The DBCC said that while it is aware of risks such as a possible escalation of the Middle East conflict, weak consumer and business confidence, and the intensification of El Nino, it also recognizes the implementation of mitigating measures aimed at supporting economic activity. “These include the government’s Unified Package for Livelihoods, Industry, Food, and Transport (UPLIFT) program which provides targeted assistance to affected sectors. Likewise, the accelerated implementation and timely completion of high-impact infrastructure projects and the Luzon Economic Corridor are expected to boost productivity and industrial growth, particularly in semiconductor manufacturing and construction,” the DBM said.

Economic managers cite persistent supply shocks and elevated global commodity prices driven by the ongoing conflict in the Middle East.

Economic managers cite persistent supply shocks and elevated global commodity prices driven by the ongoing conflict in the Middle East.