Analysts say lower Philippine growth goals more realistic

By Justine Irish D. Tabile, Senior Reporter

ANALYSTS said the government’s downwardly revised growth targets for the next two years better reflect current economic conditions, although elevated inflation and sluggish consumer demand continue to pose downside risks.

The Development Budget Coordination Committee (DBCC) had lowered its gross domestic product (GDP) growth target for 2026 to 3.5%-4.5% from 5%-6% earlier, citing the possible escalation of the Middle East conflict, weak consumer and business confidence, and intensifying El Niño.

The DBCC had also lowered the 2027 GDP growth target to 5%-6% from 5.5%-6.5%, while the growth assumptions for 2028 to 2030 were reduced to 5%-6% from 6%-7%.

“I think it’s a fair assessment of the current state of affairs; for perspective, our own (2026) forecast is smack in the middle of this range, at 4%,” Miguel Chanco, chief emerging Asia economist at Pantheon Macroeconomics, told BusinessWorld.

“Government expectations for this year were too high to begin with, especially as the critical consumer sector is still suffering from structural headwinds. Things have only become more difficult with the postwar surge in inflation further affecting household finances,” he added.

Mr. Chanco said that sluggish government spending may also be a potential downward risk, along with muted private demand. He noted there has been no recovery in infrastructure even after the dissolution of the Independent Commission for Infrastructure that investigated the flood control scam.

Also, Mr. Chanco said household spending and business investment “will feel a renewed squeeze from the re-tightening of monetary policy.”

The Bangko Sentral ng Pilipinas (BSP) raised its policy rate by 25 basis points to 4.75% on June 18, marking the second rate hike this year.

INFLATION
Meanwhile, the DBCC also raised its inflation assumptions, citing “elevated global commodity prices and supply shocks arising from the Middle East conflict.”

It now expects headline inflation to average 6%-7% in 2026, before easing to 4%-5% in 2027 and 2%-4% from 2028 to 2030. The inflation assumptions for the next two years are both well above the BSP’s 2%-4% target.

Security Bank Financial Markets Segment Research Head and Chief Economist Angelo B. Taningco said the revised GDP growth and inflation assumptions were broadly reasonable.

“Risks are tilted to the downside for GDP growth and these include weak household spending from low consumer confidence, sluggish capital formation due to poor business sentiment, lack of fiscal stimulus, aggressive monetary tightening, and widening trade deficit given hefty import costs and steady exports,” he said.

“Risks on inflation are tilted to the upside and among these are severe El Niño, hefty minimum wage and transport fare hikes, and prolonged global energy shock due to re-escalation of Iran war and prolonged closure of Strait of Hormuz,” he added.

Sought for comment, the Department of Budget and Management said that the medium-term outlook remains “positive.”

“The adjustment in the 2026 GDP growth assumption should be viewed in the context of prevailing domestic and global developments. It reflects a prudent recalibration of our macroeconomic assumptions rather than a change in the government’s long-term growth strategy,” it told BusinessWorld.

“The medium-term outlook remains positive. In fact, the government’s growth assumptions for the succeeding years continue to reflect confidence in the country’s economic fundamentals, with GDP projected to accelerate to 5-6% through 2030,” it added.

FISCAL PROGRAM
Meanwhile, the government has also revised its fiscal program stating that “current macroeconomic conditions and geopolitical developments have increasingly undermined the credibility and relevance of the growth targets and fiscal projections published by the DBCC in October.”

The DBCC now expects the fiscal deficit to reach P1.66 trillion or -5.4% of GDP this year from its previous estimate of P1.61 trillion or -5.3% of GDP.

For 2027, the fiscal deficit is expected to widen further to P1.69 trillion or -5.1% of GDP, from P1.59 trillion or -4.8% of GDP previously.

Fiscal deficits from 2028 to 2030 were now expected to account for -4.8%, -4.2%, and -3.5% of GDP, respectively.

“On average, the medium-term deficit-to-GDP ratios will increase by 0.4 percentage point (ppt) from the targets approved during the 192^nd DBCC Meeting,” the DBM said.

“Despite this, the deficit path will continue to decline by an average of 0.5 percentage point annually, from the programmed level of 5.4% of GDP in 2026 to 3.5% of GDP by 2030,” it added.

Revenue projection was also downwardly revised to just P4.81 trillion in 2026 from P4.82 trillion previously.

For 2027, revenues are expected to reach P5.21 trillion, higher than the previous estimate of P5.12 trillion.

Revenue projections were reduced to P5.52 trillion from P5.57 trillion for 2028, P5.99 trillion from P6.08 trillion for 2029, and P6.52 trillion from P6.63 trillion for 2030.

Meanwhile, disbursements are now projected to reach P6.47 trillion in 2026 from P6.43 trillion previously.

Next year, disbursements are expected to jump to P6.9 trillion from the earlier figure of P6.71 trillion.

Disbursement projections were likewise raised to P7.25 trillion from P7.11 trillion for 2028, P7.61 trillion from P7.51 trillion for 2029, and P7.98 trillion from P7.94 trillion for 2030.

“This calibrated fiscal stance provides the government with the flexibility to support economic recovery while preserving fiscal sustainability,” the DBM said.

2027 BUDGET
With the revised medium-term macroeconomic assumptions, the government has proposed a P7.2-trillion national budget for 2027, which is equivalent to 21.7% of GDP.

This is 6% higher than this year’s P6.79-trillion budget.

“The government recognizes that recent external and domestic developments— including geopolitical uncertainties and the need to strengthen governance and quality in infrastructure implementation — require a measured policy response,” the DBM said.

“Looking ahead, the government intends to pursue strategic, high-quality public investments supported by stronger project preparation, integrated infrastructure master planning, and improved budget execution to sustain long-term growth,” it added.

Jose Enrique “Sonny” A. Africa, executive director of the think tank IBON Foundation, said the proposed budget is unlikely to give any significant stimulus to the slowing economy.

“The political choice to rein in the budget in 2027 is presented as fiscally prudent but socially and economically counterproductive, and will bear down on ordinary Filipinos the worst,” he said, citing that the budget grew by an average of 11% since 1987.

“This is especially peculiar because the memo itself acknowledges adverse economic conditions and the country’s growing development needs,” he added.