OECD slashes PHL growth projections

THE ORGANISATION for Economic Co-operation and Development (OECD) sharply downgraded its Philippine growth forecasts and raised its inflation outlook through 2027, warning of a temporary stagflationary shock amid elevated oil prices and weak domestic demand.

In its latest Economic Outlook released on June 3, the OECD said it expects the Philippine economy to expand by 3.2% in 2026, significantly slower than its 5.1% forecast in December. If realized, this will be slower than the 4.4% gross domestic product growth in 2025.  

The Paris-based organization also cut its 2027 growth projection to 5% from 5.8% previously.

“We project growth to be weak at 3.2% in 2026, before recovering to 5% in 2027 as inflation dissipates and public investment gradually recovers,” said OECD economist Cyrille Schwellnus in an online media briefing on Wednesday.

Both forecasts are below the government’s 5%-6% growth target for 2026 and 5.5%-6.5% target for 2027. The Palace earlier said the Development Budget Coordination Committee revised its macroeconomic assumptions, but new figures have yet to be released.

Meanwhile, inflation is projected to exceed the government’s 2%-4% target range in 2026 before easing to the upper end of the band in 2027.

The OECD raised its Philippine inflation forecast to 6.8% in 2026 from 2.6%, as well as its 2027 projection to 4% from 3% previously.

The inflation forecast for 2026 is above the Bangko Sentral ng Pilipinas’ (BSP) revised estimate of 6.3%, while its 2027 forecast of 4% is below the BSP’s 4.3% estimate.

Asked whether the Philippines faces a greater risk of stagflation, Mr. Schwellnus said the shock is expected to be temporary.

“In 2026 we see growth slowing quite sharply and inflation increasing quite a bit and that would go in the direction of a stagflationary shock,” he said.

“But we also highlight in our note that we currently expect this to be temporary. So, growth will recover in 2027 to 5% and inflation is projected to return to the central bank’s target band in 2027,” he added.

However, Mr. Schwellnus said the Philippines’ recovery would depend on a rebound in public investment, easing inflationary pressures, developments in the Middle East, and a vigilant, data-dependent monetary policy.

“The Philippines entered the energy crisis with growth already slow,” he said, citing the sharp contraction in public investment following corruption investigations in 2025, as well as softer private consumption amid a weakening labor market.

The OECD expects private consumption to grow by 2.7% in 2026 and 3.8% in 2027. These are sharply below its December projections of 5.1% and 5.9%, respectively.

Meanwhile, it projects public investment to recover gradually in the second half of 2026.

It expects gross fixed capital formation, the investment component of the economy, to grow by 1.2% in 2026 and 8.2% in 2027 from earlier projections of 2.4% and 5.3%, respectively.

“Going forward, we think that high inflation will further weigh on real incomes and private consumption while the recovery in public investment is expected to remain subdued in the near term in 2026,” Mr. Schwellnus said.

As a net oil importer, the Philippines is highly exposed to the oil shock.

“The central bank has already raised the policy rate by 25 basis points (bps), and we expect further tightening as inflation and exchange rate pressures rise,” Mr. Schwellnus said.

“But despite this monetary tightening, inflation is projected to average 6.8% in 2026, well above the central bank’s target band, before gradually easing as energy pressures dissipate,” he added.

The OECD expects the BSP to raise its policy rate by another 100 bps in 2026 before easing to 5% in 2027.  — Justine Irish D. Tabile