Middle East war darkens outlook for Philippine economy — BMI

THE PHILIPPINE ECONOMY is likely to expand by 4.7% this year, amid sluggish government spending and oil supply disruptions arising from the ongoing war in the Middle East, Fitch Solutions unit BMI said.

In a report dated March 31, BMI said Philippine gross domestic product (GDP) growth may have recovered in the first quarter, expanding by 3.6% due to strong exports and factory activity.

If realized, this would be faster than the post-pandemic low of 3% in the fourth quarter of 2025, but much slower than 5.4% in the first quarter of 2025.

At the same time, BMI said it cut its full-year Philippine GDP growth projection to 4.7% from 5.1%, reflecting its shift to a scenario where oil prices remain higher for longer.

“Subdued government capex (capital expenditures) continued to weigh on overall activity. Furthermore, the US-Iran conflict darkens our outlook for the rest of the year,” BMI said.

Latest data from the Bureau of the Treasury showed that government spending fell year on year for a sixth straight month in January. State spending slumped by 23.9% to P303.5 billion from the P398.8 billion logged in the same month last year.

The Fitch unit also noted that elevated energy prices amid the war will likely weaken consumers’ purchasing power, eventually taking a toll on the consumption-driven economy.

“Already, this has fed through to higher domestic energy prices, with diesel and gasoline prices rising by around 80% and 50% respectively, compared with pre-conflict levels,” BMI said.

“Higher fuel costs will erode household purchasing power and weigh on growth, while government measures to curb energy consumption — including a four-day workweek for public sector workers — will add further to this drag,” it added.

The month-long Middle East conflict sent oil prices soaring after the closure of the Strait of Hormuz disrupted crude oil shipments.

The Philippines, a net importer of oil, sources most of its supply from the Middle East, making the country vulnerable to swings in global oil prices.

Last month, President Ferdinand R. Marcos, Jr. placed the Philippines under a state of national energy emergency for a year amid concerns over the country’s energy supply.

Mr. Marcos also signed into law a measure temporarily authorizing the Executive department to suspend or reduce the excise tax on petroleum products.

Since the US and Israel began its war on Iran in late February, local pump prices have jumped up by P43.50 a liter for gasoline, P67.35 per liter for diesel and P70.90 per liter for kerosene.

However, the Department of Foreign Affairs said last week that it has secured a deal with Iran, allowing Philippine-flagged vessels shipments and seafarers safe passage through the Strait of Hormuz.

BMI sees consumer prices soaring in the coming months, raising its full-year inflation forecast to 3.6% from 3.2% previously.

“Even so, we are revising up our inflation forecast by 0.4 (percentage point) to 3.6%, with implications for monetary policy,” it said.

This also came after the Bangko Sentral ng Pilipinas (BSP) stood pat in an off-cycle meeting last month as it noted that inflation may breach its 2%-4% target at 5.1% this year.

The central bank’s benchmark rate currently stands at an over three-year low of 4.25%, following 225 basis points (bps) in total cuts since August 2024.

For BMI, the BSP’s easing cycle has now hit a dead end, with no room for any further reductions at least until yearend.

“This decision suggests that the BSP is willing to look past short-term supply-shock inflation spikes and signals the bar for a rate hike remains high,” it said. “Taken together, this meeting reinforces our revised call for no additional easing in 2026.”

The Monetary Board is scheduled to hold a policy meeting on April 23. — Katherine K. Chan