Singapore-based United Overseas Bank Ltd. (UOB) expects the Philippine economy to hit at least the lower end of its lowered growth target for 2026, even as governance issues in the aftermath of the flood-control infrastructure corruption scandal remain a key downside risk.

In its latest quarterly global outlook for the second quarter of 2026, UOB forecasts annual Philippine gross domestic product (GDP) growth of five percent, within the government’s downgraded target range of up to six percent for the year.

The Singaporean bank said its 2026 projection, which is a faster pace of GDP expansion than last year’s post-pandemic low of 4.4 percent, would be “supported by the Association of Southeast Asian Nations (ASEAN) chairmanship, an accommodative monetary policy stance, manageable inflation, persistent global trade flows, and the ongoing artificial intelligence (AI)-driven upcycle.”

“Nevertheless, restoring integrity and rebuilding momentum in the national infrastructure program remain essential to safeguarding the growth outlook amid ongoing external uncertainties,” UOB said.

“Persistently weak investment, domestic political or governance setbacks, renewed global tariff risks, and spillovers from global financial and geopolitical volatility are key downside risks to growth,” it added.

UOB projected GDP growth to further quicken to 5.3 percent in 2027, although this would be below the 5.5- to 6.5-percent goal for next year.

The Singaporean bank expects economic growth to be supported by manageable inflation averaging three percent both this year and next year—higher than the nine-year low of 1.7 percent last year but within the two- to four-percent target band.

Amid a “fluid” situation in the Middle East, UOB cautioned that “any sustained escalation would primarily impact the Philippines’ inflation and the Philippine peso through direct price and currency channels.”

It noted that in the case of the peso, the local currency quickly reversed its two-percent gain against the United States (US) dollar since the start of the year when Middle East tensions flared up.

The peso closed last week at ₱59:$1, nearing record-low levels.

UOB believes that the peso is expected to maintain a defensive bias in the near term due to a combination of narrowing US-Philippine interest rate differentials, fiscal constraints, and elevated external risks such as the ongoing Middle East war and global trade uncertainties.

Weak foreign direct investment (FDI) inflows, stemming from the public works corruption scandal and political uncertainty, may further limit near-term support for the currency, it added.

As such, UOB sees the peso on a “more modest appreciation trajectory,” lingering at the ₱59:$1 level in the second quarter before strengthening to ₱58.5 versus the greenback in the third quarter, ₱58.2 in the fourth quarter, and ₱57.8 in the first quarter of 2027.

The Singaporean bank also expects the Bangko Sentral ng Pilipinas (BSP) to hold on to the current policy rate of 4.25 percent for the rest of the year, “barring a material change in global conditions or a further deterioration in the first quarter of 2026 GDP.”

It nonetheless warned that “a prolonged Middle East conflict could further push energy costs higher and weaken the Philippine peso, amplifying domestic inflationary pressures in the months ahead.”