Following weaker-than-expected Philippine economic expansion in the first quarter of 2026, Singapore-based United Overseas Bank Ltd. (UOB) slashed its full-year growth forecast to 3.2 percent from a more optimistic five percent previously.

Excluding the contraction during the peak of Covid-19 pandemic lockdowns, UOB’s downgraded projection would mark the weakest growth in 18 years since the 1.4-percent expansion recorded in 2009 during the global financial crisis (GFC).

In a May 7 report, UOB senior economist Julia Goh and economist Loke Siew Ting cited the five-year-low gross domestic product (GDP) growth recorded in the first quarter, compounded by uncertainties tied to the United States (US)-Iran military conflict and domestic economic challenges.

The latest Philippine Statistics Authority (PSA) data showed that GDP expansion from January to March posted its weakest pace since the height of the pandemic, fueling debates on whether the country has entered a period of stagflation or reverted to being the “sick man of Asia,” as was observed following the collapse of the Ferdinand E. Marcos Sr. dictatorship.

The GDP growth performance during the period also fell significantly short of the government’s minimum growth target of five percent, leaving the Philippines trailing regional peers such as Vietnam, Indonesia, and China.

According to UOB, the third consecutive quarter of growth slowdown “reflects a confluence of domestic and external headwinds, including higher energy costs arising from the Middle East conflict and corruption scandals that sharply curtailed public investment and weighed on private consumption.”

To respond to the deepening energy crisis, the government declared a one-year national energy emergency in March, introducing “energy-saving measures, including a four-day work week for civil servants and mandated cuts of up to 20 percent in power and fuel consumption across government agencies.”

Additionally, the transportation sector remains under pressure, with airlines cutting flight frequencies and suspending several international and domestic routes due to soaring fuel prices and security concerns in the Middle East.

“All six major sectors showed weaker year-on-year performance,” UOB noted, emphasizing the broader impact of surging energy prices.

PSA data showed that the agriculture, forestry, and fishing sector contracted by 0.2 percent, while industry posted a 0.1-percent decline.

Meanwhile, government spending growth sharply slowed to below five percent from 18.7 percent a year ago.

On the demand side, UOB said household consumption grew by only three percent, while investment contracted by 2.7 percent amid “subdued investor confidence following corruption scandals.”

Compounding these concerns was the sudden spike in inflation, which accelerated to a three-year high of 7.2 percent in April.

This combination of unfavorable macroeconomic indicators prompted UOB to flag “increasing risks of a stagflationary environment.”

Department of Economy, Planning, and Development (DEPDev) Secretary Arsenio M. Balisacan last week rejected this bleak assessment, arguing that the government had previously brought inflation down to more manageable levels before the flare-up of the Middle East war.

Balisacan also said unemployment has remained below previous peak levels, while job quality continues to improve.

UOB’s somewhat somber assessment reinforced its call for two additional quarter-point hikes in key borrowing costs, which would bring the policy interest rate to five percent.

Looking ahead, the Singaporean bank’s outlook remains grim as the country braces for weather-related disruptions.

UOB cited a 79-percent probability of El Niño developing between June and August, warning that the dry spell could hurt farm output and push prices higher in the second half of 2026.