Philippines Cuts GDP Targets as War, Scandal Hit Growth

The Philippine government slashed its growth targets through 2030, citing the drag from the Middle East conflict, a domestic corruption scandal, and persistent inflation. The interagency Development Budget Coordination Committee now expects GDP to expand 3.5% to 4.5% this year, down from the 5.0% to 6.0% range set in December. The new target for 2027 through 2030 is 5.0% to 6.0%, also lower than the previous 5.5% to 6.5% and 6.0% to 7.0% bands for those years.

“The current macroeconomic conditions and geopolitical developments have increasingly undermined the credibility and relevance of the growth targets and fiscal projections,” Acting Budget Secretary Kim Robert de Leon said in a national budget memorandum issued Friday.

The DBCC cited the war between the U.S., Israel and Iran, weak consumer and business confidence, and the intensification of an El Niño event as key downside risks. The government also faces a narrower fiscal space. De Leon said the alleged anomalies in flood control projects last year and the Middle East conflict “made a drastic impact on the country’s macroeconomic fundamentals.”

The inflation outlook has worsened. Consumer price growth is now forecast to hit 6.0% to 7.0% this year, well above the 2.0% to 4.0% target, driven by elevated global commodity prices and supply disruptions linked to the U.S.-Iran war. Inflation is projected to ease to 4.0% to 5.0% in 2027 and return to the target range from 2028 onward.

The peso is expected to average 60 to 62 per dollar over the medium term as depreciation pressures persist. Dubai crude oil prices are projected to average $80 to $100 per barrel in 2026 before easing to $70 to $90 in 2027 and $60 to $80 from 2028 to 2030.

Economic activity is expected to recover starting next year as several growth-supporting measures gain traction, including the Unified Package for Livelihoods, Industry, Food and Transport program announced earlier this year in response to the energy shock from the Middle East war. The accelerated implementation of high-impact infrastructure projects and the Luzon Economic Corridor were also cited as drivers of the 2027 rebound.

The proposed national budget for 2027 is 7.2 trillion pesos, equivalent to 21.7% of GDP and a 6% increase from this year's 6.79-trillion-peso spending program. De Leon said the government is “confronted with a very narrow fiscal space” and that every peso in the budget should translate into “meaningful and tangible accomplishments.”

Under the revised fiscal framework, revenues are projected to rise to 5.21 trillion pesos in 2027 from an estimated 4.81 trillion this year. Disbursements are programmed to increase to 6.90 trillion pesos from 6.47 trillion. The fiscal deficit is expected to widen to 1.69 trillion pesos in 2027 from 1.66 trillion in 2026 but narrow as a share of the economy to 5.1% of GDP from 5.4%.