Citing tighter fiscal squeeze early this year and the escalating war in the Middle East, Nomura Holdings Inc., a Japanese investment and brokerage giant, sees a limited rebound from the economic growth slump the Philippines experienced in 2025.

“Fiscal tightening intensified at the start of the year and points to a further drag on near-term growth momentum at a time when the Iran conflict poses additional downside risks,” Nomura said.

Nomura analysts Euben Paracuelles and Nabila Amani wrote in a commentary published last week that the sharp drop in fiscal spending in January could constrain Philippine output recovery.

“We thus see rising downside risks to our 2026 gross domestic product (GDP) growth forecast of 5.3 percent, which is well below potential, in addition to the fallout from the Iran conflict, to which the Philippines is relatively heavily exposed, in our view.”

Recall that GDP growth sharply slowed to 4.4 percent in 2025 from 5.7 percent in 2024, crippled by dampened confidence stemming from the eruption of a flood-control corruption controversy.

Government spending saw a sharp 23.9-percent decline last January, falling to ₱303.5 billion from ₱398.8 billion a year ago, the latest Bureau of the Treasury (BTr) data showed. This massive drop was primarily due to rescheduling of transfers to local government units (LGUs).

The BTr also cited base effect from January 2025, which saw large capital disbursements for settlement of accounts payable and frontloading of expenditures ahead of an election ban.

According to Nomura’s earlier reports, the lender expects the economy to grow by 5.3 percent in 2026 in both its positive and baseline scenarios, where oil is priced between $75 and $86 per barrel. Meanwhile, growth is expected to slow to 4.4 percent in a scenario of $100 per barrel.

On prices, forecasts point to an average of 3.2 percent in the positive scenario, 4.4 percent in the baseline, and 5.4 percent in the negative scenario.

Nomura noted that there is “limited scope for fiscal support measures” to cushion the economy from external shocks. It cited the country’s persistent fiscal deficit, elevated debt burdens, and limited support from tax relief.

It can be recalled that the budget deficit stood at 5.6 percent of GDP in 2025, much higher than the pre-pandemic average of 2.6 percent. Nomura also said that national government (NG) debt ratios are already at approximately 60 percent, restricting the ability to fund new subsidies.

Further, the proposed measures of the Marcos Jr. administration, such as temporary reductions in fuel excise taxes or value-added tax (VAT) exemptions, are seen as creating fleeting relief for consumers.