Singapore-based regional surveillance body ASEAN+3 Macroeconomic Research Office (AMRO) is seeing a full-year stagflationary period as it significantly lowers its Philippine growth outlook amid mounting pressure from elevated costs of living.

Based on AMRO’s June 2026 interim update of its ASEAN+3 Regional Economic Outlook (AREO), published on Tuesday, June 2, Philippine gross domestic product (GDP) growth is expected to moderate from 4.4 percent in 2025 to a possibly new post-pandemic low of 4.1 percent in 2026—a significant decline from its earlier forecast of 5.3 percent.

“Association of Southeast Asian Nations (ASEAN) growth has been downgraded in some economies, including the Philippines and Vietnam, where stronger inflation passthrough is expected to weigh on domestic demand,” the AMRO report said.

This suggests that surging prices are hurting Filipino households’ ability to spend, which has long been an engine of the domestic economy.

AMRO projected headline inflation to average six percent in 2026, higher than its previous forecast of 3.9 percent. If realized, this would breach the two- to four-percent band the Bangko Sentral ng Pilipinas (BSP) deems manageable and conducive to economic growth. It would also match the annual price growth seen in 2023, which was the highest since the 8.2-percent inflation rate in 2008 at the height of the global financial crisis (GFC).

According to AMRO, the upward revision in inflation assumptions is “more pronounced in ASEAN economies, reflecting greater reliance on energy imports and a larger share of food in consumption baskets.”

Domestic output growth is expected to pick up to 5.5 percent in 2027, still lower than the initial projection of 5.8 percent.

Inflation, meanwhile, is seen easing to 4.1 percent in 2027, which remains higher than the earlier assumption of 3.6 percent and still above the four-percent government ceiling.

Meanwhile, the government’s move to expand exemptions from 12-percent value-added tax (VAT) on more than 2,200 essential medicines would help stimulate pharmaceutical demand and offer expansion opportunities for generic drug manufacturers, according to BMI, a Fitch Solutions company.

“The government’s heightened focus on healthcare costs will likely support growth opportunities for local manufacturers of generic medicines,” BMI wrote in a commentary published last Monday, June 1.

Back in April, the Bureau of Internal Revenue (BIR) expanded the list of VAT-exempt medicines for serious and chronic illnesses—including cancer, diabetes, and hypertension—to 2,263 items, up from 2,242 in late 2025.

This policy shift addresses high out-of-pocket healthcare spending, which accounted for 42.7 percent of total health expenditure in 2025. By reducing the tax burden, the government expects lower retail prices to drive higher sales volumes for drugmakers.

This fiscal move forms part of a broader macroeconomic strategy under the Philippine Development Plan (PDP) 2023-2028—the Marcos Jr. administration’s medium-term socioeconomic blueprint—which targets a 40-percent increase in local manufacturing capacity by 2028.

To attract investment, the Philippine Economic Zone Authority (PEZA) is developing dedicated pharmaceutical parks, while a proposed corporate tax cut from 25 percent to 20 percent aims to entice foreign players.

However, BMI warned of sector growth risks, including the industry’s heavy reliance on imported pharmaceuticals and raw materials, as well as limited domestic research and development (R&D) capacity and a shortage of skilled labor.