Oil crisis clouds Philippines growth outlook

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Nomura, BMI cut 2026 GDP forecasts

MANILA, Philippines — The country’s economy is widely expected to slow this year as global energy disruptions weigh on domestic activity, with a prolonged period of high fuel prices slashing growth by up to 0.6 percentage point, international research and analysis firms said.

In its latest Asia Economic Monthly report, Nomura Global Markets Research lowered its Philippine growth projection to five percent from 5.3 percent previously, citing the impact of higher oil prices and supply constraints linked to tensions in the Middle East.

It also raised its inflation forecast for 2026 to 4.9 percent from 3.2 percent, signaling mounting price pressures that could complicate the policy outlook.

In a separate report, BMI, a unit of Fitch Solutions, showed the impact on gross domestic product (GDP) growth and inflation of three different average price scenarios for Brent crude, amid risks of prolonged disruptions due to the Middle East conflict.

Under Level 3 or the worst-case scenario of Brent crude prices averaging $110 per barrel, BMI said it expects a 0.57-pp cut in GDP growth and 1.67-pp increase in inflation in the Philippines.

Meanwhile, Level 2, which assumes Brent crude prices averaging $95 per barrel, is estimated to lead to a 0.30-pp reduction in the country’s GDP growth and 0.89-pp increase in inflation.

As for Level 1 or a scenario of oil prices averaging $85 per barrel, BMI expects GDP growth to be trimmed by 0.13 pp and inflation to rise by 0.37 pp.

BMI said the Philippines is clustered with Indonesia, Malaysia, Thailand and Vietnam, which are estimated to see a GDP reduction of 0.6 to 1.2 pp under Level 3.

BMI said this growth impact is “meaningful but relatively manageable.”

Nomura said the Philippines is among the most vulnerable economies in Asia to the ongoing energy shock, noting that it expects “a more pronounced stagflationary impact in the Philippines and Thailand.”

The report highlighted that the current crisis differs from previous shocks, as it involves both price and supply disruptions in oil markets, amplifying its impact on economies reliant on energy imports. This could translate into slower growth and faster inflation across the region, although the effects vary by country.

For the Philippines, the impact is expected to be more severe due to limited buffers and full pass-through of higher fuel costs to consumers.

Nomura noted that unlike some Asian peers that have cushioned the impact through fuel subsidies, the Philippines has largely allowed market-driven price adjustments, which could accelerate inflation across transport, food and other energy-sensitive sectors.

As a result, core inflation is projected to climb sharply, rising from around three percent in the first quarter to as high as six percent by the fourth quarter of 2026, driven by second-round effects such as higher costs for restaurants, recreation and personal services.

Nomura also flagged downside risks to growth, including weaker remittance inflows, reduced tourism and tighter financial conditions, all of which could dampen domestic demand.

Given these dynamics, it now expects the Bangko Sentral ng Pilipinas to shift its policy stance, projecting a total of 50 basis points in rate hikes this year, bringing the policy rate to 4.75 percent, before easing by 75 basis points in 2027.

Across the region, Nomura said central banks face a policy dilemma between supporting growth and containing inflation, with responses likely to vary depending on each economy’s exposure to the shock.

“Whether the energy shock leads to more inflation or hurts growth varies across Asia, so differentiation in central bank responses is important to make,” the report said.

Earlier, BMI cut its 2026 growth forecast for the Philippines to 4.7 percent from 5.1 percent to reflect the “Extend to End” scenario, in which oil prices remain higher for longer.

The forecast is still higher than the 4.4 percent growth posted in 2025.

However, the new forecast is below the government’s five to six percent growth target for the year.

BMI earlier said it expects the Philippines to have posted 3.6 percent growth in the first quarter, faster than the previous quarter’s three percent growth, supported by resilient exports and manufacturing.

The government is set to release data on first quarter economic performance next month.