UBS sees Philippine growth at low end of 5%-6% goal this year

By Katherine K. Chan, Reporter

PHILIPPINE economic growth may land at the bottom of the government’s 5% to 6% goal this year as investment slowly recovers from last year’s flood control scandal, UBS Investment Bank Global Research said.

“Growth is near its trough, and we expect quarterly sequential momentum to strengthen to 1.4% over the next two quarters, and GDP (gross domestic product) growth to be 5% in 2026,” it said in a note on Wednesday.

That would top last year’s 4.4% growth, which was weighed down by a corruption scandal that hit investments, household spending and government outlays.

It would also mark a return to the government’s target after three consecutive years of misses. UBS expects public investment to rebound early this year before normalizing toward yearend.

“In our revised forecasts, we assume a gradual and backloaded recovery in public investment, starting with a small uptick in the first quarter of 2026, with spending returning to second-quarter 2025 levels by the fourth quarter of 2026,” it added.

Gross capital formation, the investment component of GDP, fell 2.1% last year after a 10.9% drop in the fourth quarter, the biggest in more than four years.

Economic managers said corruption allegations from last year’s flood mess undermined business and investor confidence.

Across Southeast Asia, UBS expects the six major economies — Indonesia, Malaysia, the Philippines, Singapore, Thailand and Vietnam — to expand by about 4.9% this year.

“The region continues to benefit from deep integration into global manufacturing value chains, supported by a sizable domestic market,” Grace Lim, senior ASEAN (Association of Southeast Asian Nations) and Asia economist at UBS Investment Bank Global Research, said in a statement.

“Conditions for growth remain in place, with household consumption driving momentum in Indonesia, an increase in private investment under way in Thailand and the Philippines, and resilient tech related export strengths in Singapore and Malaysia,” she added.

Remittances, a key source of foreign inflows, could help cushion the economy, but analysts warn that global shocks may pose risks.

The Middle East war is likely to weigh on growth, according to Metropolitan Bank & Trust Co. (Metrobank) Chief Economist Nicholas Antonio T. Mapa.

“For the economy, we’ll likely brace for weaker growth,” he said in a note. “Inflation is expected to breach the target and the central bank’s easing cycle is over.”

The peso-dollar rate is pressured higher as a bloated oil bill means more demand for dollars, he added.

The war could prompt the Bangko Sentral ng Pilipinas to hike rates, ending a nearly two-year easing cycle.

“The war in the Middle East likely means inflation will breach the target, growth will stay at 4% and the next [central bank] move is a hike and not a cut in 2026,” the Metrobank economist separately said in a post on social media platform X.

The Monetary Board last month cut the reverse repurchase rate by 25 basis points (bps) to 4.25%, the lowest since August 2022, trimming key rates by 225 bps since easing began in August 2024.

Singapore-based DBS Bank warned the Philippines might see the highest regional price pressures from oil.

“Amongst the ASEAN-6 countries, the net oil trade balance is most adverse in Thailand, Malaysia and Vietnam (as a percentage of GDP), with the pass-through to price pressures most material in Thailand and the Philippines,” DBS Senior Economist for Eurozone, India and Indonesia Radhika Rao and Senior Economist for ASEAN Chua Han Teng said in a note.

The Department of Energy has warned that oil price increases in the local market would continue as the Middle East war could last weeks.

Since January, pump prices have increased by P6.70 a liter for gasoline, P9.40 for diesel and P7.70 for kerosene.