Philippines still likely to be ASEAN’s second-fastest growing economy despite oil shocks

By Katherine K. Chan, Reporter

The Middle East conflict threatens the Philippines’ growth prospects but a rebound in private spending and robust exports could still position the country as the second fastest growing economy in the region, the ASEAN+3 Macroeconomic Research Office (AMRO) said.

AMRO Chief Economist Dong He said they see the Philippine gross domestic product (GDP) expanding by 5.3% this year, unchanged from their forecast in January, and by 5.8% in 2027.

“This makes the Philippines one of the faster-growing economies in the region – above the ASEAN average of 4.6% and the ASEAN+3 average of 4%,” Mr. He told BusinessWorld in an e-mail interview. “The acceleration reflects an expected recovery in private consumption and stronger exports.”

If both projections hold true, the economy will surpass its 4.4% growth last year or when the flood control graft scandal slowed government spending, household consumption and investments in the country.

Household spending, which accounts for over 70% of the country’s GDP, grew by 3.8% in the fourth quarter, the weakest pace seen since the -4.8% in the first quarter of 2021. Full-year household spending growth eased to 4.6% in 2025 from 4.9% in 2024.

On the other hand, the country’s goods exports grew by 15.2% to $84.41 billion last year, exceeding the Bangko Sentral ng Pilipinas’ (BSP) projected 9% growth to $60 billion.

For this year, the BSP expects goods exports to rise modestly by 3% to $65.3 billion amid reduced front loading and elevated trade costs, before picking up by 4% to $67.9 billion in 2027.

Still, Mr. He said the Philippines will likely remain resilient against tariff and trade disruptions.

“The Philippines has been relatively less affected by tariff and trade disruptions, reflecting its more domestically driven growth and lower reliance on goods exports,” he said.

“However, vulnerabilities remain in electronics and semiconductor exports. To mitigate risks, the country should further diversify export markets, improve trade facilitation and logistics, and attract firms looking for supply chain relocation to strengthen external resilience,” he added.

The information technology and business process management (IT-BPM) and finance sectors may also help drive the country’s growth this year, Mr. He said.

However, he noted that the IT-BPM industry needs policies to support its shift toward knowledge-process outsourcing (KPO) and global capability centers (GCCs) activities.

“For the Philippines, the high value-added knowledge-based services, such as the IT-BPM and finance would continue to be the key sources of value-added creation,” Mr. He said. “However, with AI (artificial intelligence) becoming increasingly prevalent, a concerted shift is required toward higher-value segments, namely KPO, GCCs and digital trade services.”

While the country may be well positioned this year, Mr. He also noted that global trade uncertainties, financial market volatility and energy shocks amid the ongoing conflict in the Middle East could weigh on its economic growth.

“The conflict in the Middle East and the resulting disruption to the Strait of Hormuz pose the most immediate risk to the outlook – a protracted disruption to global energy supply could push inflation higher and weigh materially on growth,” he said.

“Other key risks include unpredictable US trade policy shifts, the uncertain trajectory of technology demand, and volatile global financial markets,” he added.

ENERGY RISKS
Oil trade disruptions have led to energy price shocks globally, with the Philippines facing oil price surges and looming fuel shortages as the war drags on.

For Mr. He, the oil crisis could mean faster inflation for the Philippines as its heavy reliance on imported oil from the Middle East makes it vulnerable to price and supply shocks.

“The Philippines is one of the more affected countries in the region,” he said. “As a net oil and gas importer, with 98% of its oil imports sourced from the Middle East, the Philippines is exposed to higher oil prices and potential supply disruptions.”

AMRO now sees Philippine inflation quickening to 3.9% this year if oil prices hold around $80-$90 per barrel. This is faster than its earlier projection of 3.2%.

However, Mr. He said inflation can further accelerate if price increases and supply disruptions last longer.

“Given heightened uncertainty, the authorities should remain vigilant and stand ready to recalibrate policy parameters to mitigate the impact of external shocks,” he added. “Specifically, amid rapidly evolving geopolitical tensions, volatile energy prices, and weaker growth momentum, the BSP should remain cautious in making monetary policy adjustments.”

Last month, the BSP kept its benchmark rate unchanged at 4.25% in an off-cycle meeting to calm markets worried over uncertainties arising from the US-Iran war.

BSP Governor Eli M. Remolona, Jr. said the Monetary Board arrived at the decision after noting that the current price pressures are supply-driven, and hiking rates immediately risk derailing the country’s economic recovery.

He added that future monetary policy decisions will consider second-round price effects, particularly a potential uptick in transport fares, food and fertilizer prices, electricity rates and wages.

AMRO’s Mr. He said the central bank must “respond decisively” once such second-round effects materialize.

“Meanwhile, enhanced coordination between fiscal and monetary authorities is required to cushion the impact of supply-driven inflation and prevent adverse effects on growth,” he added. “In this regard, the government could consider timely administrative measures, such as targeted subsidies to highly exposed sectors and reducing tariffs on energy imports.”

Amid current economic shocks, Mr. He said the Philippines has a “sharper mandate than usual” in tightening regional cooperation and addressing shared economic challenges as it takes the helm in the Association of Southeast Asian Nations (ASEAN) this year.

“The current moment – where trade disruptions and an energy shock are testing the region simultaneously – gives the chairmanship a sharper mandate than usual,” AMRO’s chief economist said.

Mr. He said the National Government must pursue local reforms alongside regional development efforts, especially by drawing in private investments, enhancing infrastructure delivery and strengthening capital markets.

“The current external environment raises the cost of delaying these reforms,” he added.

This year, the Philippines assumed chairship of the 11-member regional bloc, composed of Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand, Vietnam and Timor-Leste.