El Niño may strain economy

By Katherine K. Chan, Reporter

THE PHILIPPINE ECONOMY could face added pressure from a looming El Niño episode as it continues to grapple with the fallout from the flood control graft scandal and elevated energy costs linked to the Iran war, according to Nomura Holdings, Inc. Global Markets Research.

In a report dated May 12, the Japan-based think tank said the Philippines, along with Thailand, Indonesia, India and Australia, is increasingly vulnerable to mounting economic pressures tied to inflation, external imbalances and worsening weather conditions.

“Thailand, Indonesia, India, Australia and the Philippines are… under growing strain,” Nomura said, citing widening twin deficits in some economies and accelerating inflation in others, including the Philippines.

The warning comes as the Philippine Atmospheric, Geophysical and Astronomical Services Administration raised the probability of a moderate to severe dry spell to 79% from June until early next year.

The latest outlook marked a sharp increase from the 55% probability forecast issued in March.

If severe dry conditions materialize, the country’s agricultural sector could take another hit as farmers continue to face elevated fertilizer costs and supply disruptions caused by the energy crisis stemming from the Iran war.

The Department of Agriculture has warned that agricultural output could decline by as much as 30% under a “Super El Niño” scenario.

Farm production has already weakened. Government data showed agricultural output contracted by 0.3% in the first quarter after declines in crops and fisheries offset gains in other subsectors.

Nomura earlier cut its Philippine gross domestic product (GDP) growth forecast for 2026 to 4.6% from 5% after the weaker-than-expected first-quarter economic expansion.

The economy grew by just 2.8% in the January-to-March period, slower than the 3.4% median estimate in a BusinessWorld poll and marking the weakest quarterly growth since the pandemic recovery period.

The Philippines also expanded by only 4.4% in 2025, the slowest in five years, after the flood control corruption scandal dampened investment activity, government spending and consumer demand during the second half of last year.

Nomura’s revised forecast is below the government’s 5% to 6% growth target for 2026 and suggests the country could miss its official growth goal for a fourth straight year.

The think tank said weak sentiment, elevated prices and slow public spending are likely to keep economic activity subdued in the first half.

It also raised its inflation forecast for the Philippines to 6.1% this year from an earlier 4.9% estimate, well above the Bangko Sentral ng Pilipinas’ 2% to 4% target.

Inflation accelerated to 7.2% in April, driven by higher food, transport and housing costs amid elevated fuel prices and supply disruptions linked to the Iran war.

TOURISM SLOWDOWN
In a separate report, Nomura said the Iran war has also started to affect tourism flows in parts of Southeast Asia after airspace closures and flight disruptions across the Middle East reduced travel demand.

Nomura Global Markets Research Chief ASEAN Economist Euben Paracuelles and Research Analyst Yiru Chen said arrivals from the Middle East to Association of Southeast Asian Nations (ASEAN) economies dropped sharply in March and April.

Thailand posted a 49.7% year-on-year decline in tourist arrivals from the Middle East in April, worsening from a 3.7% drop in the first two months of the year.

Singapore posted a 34.2% decline in March from an 11.2% contraction in January and February, while Malaysia arrivals from the region fell 29.8% after earlier growth.

The analysts also noted weaker visitor arrivals from Europe following the outbreak of the Iran war in late February.

However, stronger tourist inflows from countries such as China partly offset the decline.

In the Philippines, tourism remained resilient despite the conflict. Government data showed international visitor arrivals had risen nearly 9% year on year to 2.24 million as of April 27.

The Department of Tourism has kept its target of attracting 6.7 million foreign visitors this year.

Still, Nomura warned that higher jet fuel prices, airfare increases, and fuel surcharges could weaken travel demand across ASEAN in the coming months.

“Unlike in 2022, there is no pent-up demand after borders reopened following the pandemic,” the analysts said. “Travel demand will likely be more price-sensitive now, and airfare price hikes, along with flight cancellations, could cause a more broad-based impact.”