ESCAP sees GDP growth at 5.2% barring prolonged ME conflict

THE PHILIPPINES is still expected to be the second fastest-growing economy in Southeast Asia this year, but the highly volatile situation in the Middle East (ME) and the possibility of a prolonged conflict poses significant risks to the outlook, the United Nations’ (UN) Economic and Social Commission for Asia and the Pacific (ESCAP) said.

ESCAP cut its forecast for 2026 Philippine gross domestic product (GDP) growth to 5.2% from 6.3% previously, according to its Economic and Social Survey of Asia and the Pacific 2026 report released on Tuesday.

This is also slower than the 5.7% projection in the World Economic Situation and Prospects 2026 report published by the UN Department of Economic and Social Affairs (DESA) in January.

Philippine GDP grew by 4.4% in 2025, a post-pandemic low, as a corruption scandal linked to state infrastructure projects shackled public spending and hit both investor and consumer confidence.

For 2027, the ESCAP sees Philippine economic growth picking up to 5.7%. This is below UN DESA’s 6.1% forecast.

Despite this, both estimates are within the government’s 5%-6% and 5.5%-6.5% GDP growth targets for 2026 and 2027, respectively.

If realized, the Philippines would post the second-fastest expansion in Southeast Asia for this year and next behind Vietnam, which ESCAP expects to grow by 7.6% in 2026 and 7.8% in 2027.

Growth in the region is expected to come in at 4.5% this year and 4.6% next year.

Meanwhile, ESCAP sees the Philippine consumer price index (CPI) averaging 2.5% in 2026 and 2027, within the Bangko Sentral ng Pilipinas’ (BSP) 2%-4% target.

The BSP said in March that it now expects inflation to average 5.1% this year as the conflict’s impact on global crude oil prices is expected to spill over into domestic food, energy, and transport costs.

For 2027, it sees the CPI returning within its target, averaging 3.8%.

“The ongoing Middle East conflict is adding fresh pressure to the economic outlook of Asia and the Pacific, disrupting energy and commodity markets, and trade and connectivity routes at a time of already high global economic uncertainty,” ESCAP said in a statement on Tuesday.

It said the forecasts in the report are as of March 17 and already factored in the immediate macroeconomic impacts of the conflict in the Middle East.

“These baseline projections assume that de-escalation over the course of 2026 will help stabilize commodity prices and restore market sentiment to some extent,” it said. “Yet the situation remains highly uncertain, and the eventual economic impacts will depend on the scale and duration of the conflict.”

In case of a prolonged conflict, they said they expect growth to be “notably lower than currently projected while inflation would be higher.”

“Under this scenario, a surge in commodity prices and freight costs as well as supply chain disruptions will spike inflation and interest rates; weaker global demand will dampen merchandise exports, remittances and tourism; and subsequent job losses and plunging market sentiment will hurt consumer spending, business investment and economic growth.”

It said the extent of the conflict’s inflation impact will depend on factors like their dependence on and ability to secure imported energy and food and their energy reserve levels.

“Countries such as Japan, Malaysia, the Philippines and the Republic of Korea rely heavily on imported food for domestic consumption.”

The Philippines is also a net oil importer and gets over 90% of its supply from the Middle East, making it vulnerable to current shocks.

The war could also affect remittances, ESCAP said, which is a key driver of household consumption in the Philippines.

“Slower economic growth would hold back government revenues while higher market interest rates and perceived sovereign risks will push up government borrowing costs. In countries where price subsidies for food and fuel are maintained, fiscal expenditures will likely be higher,” it added. “Weaker exchange rates will also increase the value of external public debt in local-currency terms, thus increasing the debt-servicing burden.”

“Taken together, these would further constrain fiscal space at a time when more fiscal support is needed to navigate the impact of the conflict.”

ESCAP said the global crisis is a wake-up call for Asia and the Pacific to strengthen its energy resilience and lessen its reliance on fossil fuels, although transition policies must be designed carefully to avoid adverse socioeconomic effects.

Tariff hikes and rising trade protectionism also present additional external risks, it added.

“Tariffs on steel and aluminum would disproportionally affect exports from India, the Republic of Korea and Vietnam, while those on semiconductors could especially hamper Malaysia, the Philippines, Singapore, Thailand and Vietnam. The eventual impact of these sectoral tariffs on countries in the region will also hinge on the United States’ ability to substitute these imports with domestic production and on tariff exemptions or reductions through negotiations.”

Since August 2025, the Trump administration has imposed a 19% reciprocal tariff on most goods from the Philippines, as well as Cambodia, Malaysia, Thailand and Indonesia.

However, the US Supreme Court earlier this year ruled that US President Donald J. Trump had exceeded his authority when he imposed his previous tariff regime. This prompted Mr. Trump to impose a 15% tariff on all imports. — Bettina V. Roc