Washington-based International Monetary Fund (IMF) has again lowered its economic growth forecast for the Philippines for both this year and next, as mounting tariffs are expected to hurt investments into the country and its exports.

Compounded by the worse-than-expected four-percent gross domestic product (GDP) growth in the third quarter, the multilateral lender now sees the economy growing by a meager 5.1 percent, moving further away from this year’s already downscaled target of 5.5 percent to 6.5 percent.

It can be noted that the latest forecast is three-tenths of a percentage point (ppt) lower than the intergovernmental organization’s 5.4-percent forecast in October.

Average growth clocked in at five percent on the back of the four-and-a-half-year low GDP print in the third quarter. National Socioeconomic Planner Arsenio Balisacan earlier conceded it has become nearly impossible to achieve the full-year target.

The IMF, meanwhile, expects this moderation to flip to acceleration in 2026, with growth at 5.6 percent, though this is a lower forecast than the lender’s October projection.

Germany-based Deutsche Bank AG said further adjustments to the key borrowing cost could be justified by the threat tariffs pose to the local economy.

“The weakened—or still weakening—domestic economic outlook on the back of governance issues and the possible dampening of external trade activity as tariffs bite could justify further rate cuts to support growth, especially as fiscal policy remains constrained,” Deutsche Bank said in commentary published last Friday.

As per the bank, Bangko Sentral ng Pilipinas (BSP) Governor Eli M. Remolona Jr.’s shift in tone from hawkish to slightly dovish last week, particularly his openness to another quarter-point cut in 2026, implies the economy remains under a “high degree of uncertainty.”

In particular, the lender expects the BSP to reduce the key interest rate by 25 basis points (bps) in the February 2026 policy meeting from the current 4.5 percent. The latest rate was lowered last week from 4.75 percent as the economy is expected to tread a gloomy path amid persistent concerns tied to governance issues.

According to the IMF, the Philippine economy’s potential growth remains at six percent. Measured against this potential, the negative output gap remains wide, an indicator the BSP is monitoring to decide on its future monetary policy stance.

On the price front, the IMF expects inflation to average 1.7 percent this year, slightly higher than its previous forecast of 1.6 percent. This remains below the government’s two- to four-percent target band, a level deemed manageable and conducive to growth.

Meanwhile, the BSP expects inflation to remain benign, averaging 1.6 percent this year, down from its previous forecast of 1.7 percent.

The IMF has also raised its 2026 inflation forecast to 2.8 percent from 2.5 percent in October, as “negative base effects recede.” This aligns with the BSP’s upward revision to 3.2 percent from 3.1 percent for 2026 and to three percent from 2.8 percent for 2027.

Deutsche Bank noted Remolona’s previous statement that the BSP was targeting a real interest rate of two percent, “suggesting that if inflation dynamics evolve as forecast, then BSP’s policy stance would already be looser than expected over the forecast horizon, thus calling for an end to monetary policy easing.”