Growth may slow to 4% as oil shock hits consumption, BMI says

PHILIPPINE economic growth could slow to as low as 4% this year if the Middle East war escalates further as higher pump prices and second-round inflation pressures will weigh on consumption, Fitch Solutions unit BMI said.

“In our escalatory scenarios, we see further scope for downward growth. Under our level three scenario, we expect growth to slow to around 4%, down from 4.4% in 2025, which will mark the weakest upturn since 2011, excluding the pandemic period,” BMI Asia Country Risk Analyst Brandon Ong said in a webinar on Tuesday.

This forecast is well below the government’s 5%-6% target.

BMI’s worst-case escalation scenario sees the conflict lasting for more than three months after April, with Brent crude hitting $150 per barrel.

“We currently expect oil prices to fall relatively quickly once the conflict winds down, but the risks are tilted towards prices remaining higher for longer depending on the extent of infrastructure damage before the situation settles,” BMI Head of Asia Country Risk Darren Tay said.

BMI said in a note dated April 20 that faster inflation due to higher oil prices will erode household purchasing power and weigh on domestic consumption in the Philippines.

“As such, we hold a cautious but positive outlook for consumer spending in the Philippines, with a slowdown in real household spending growth from 4.7% in 2025 to 4.5% year on year in 2026. In real terms, we expect household spending to grow to P14.1 trillion (at 2010 prices) over 2026, 26.2% higher than 2019 levels,” it said.

“Spending will remain influenced by the elevated inflationary pressures as well as currently high debt levels, along with related debt servicing costs, although a tight labor market will still support spending.”

Despite growing inflation risks, it expects the Bangko Sentral ng Pilipinas’ (BSP) Monetary Board to stand pat at its meeting this week. “The March 2026 inflation print came in at 4.1%, breaching the BSP’s 2-4% inflation target range for the first time since July 2024. That said, given the weak growth backdrop, we think the bank will opt to look past temporary supply-driven price surges and adopt a wait-and-see approach.”

“Moreover, our current projections show inflation returning to the target range in the second half. Monetary policy is also less well-positioned to tackle supply-side price shocks,” Mr. Ong added.

He said that while they expect a pause this week, they see a rate hike in June or in an off-cycle meeting.

This comes as BMI sees headline inflation breaching 4% throughout this quarter, with second-round effects further fueling price increases.

“Unlike in Thailand and several other countries in Asia, the [Philippine] government does not typically absorb higher energy costs, so rises in global energy prices pass through relatively quickly. We are already seeing this in the data,” Mr. Ong said.

As of April 13, diesel and gasoline prices have increased by 172% and 72.6%, respectively, from pre-conflict levels, which are among the sharpest increases in Asia, he noted.

Meanwhile, the peso could weaken to as low as the P65-per-dollar level if oil prices stay higher for longer due to a prolonged war as this could affect the country’s current account balance and investor sentiment.

“Even so, in our base case, we still expect the peso to strengthen as the conflict de-escalates and for the peso to trade around P59.50 per US dollar by end-2026,” Mr. Ong said. — A.M.C. Sy