Singapore-based Oversea-Chinese Banking Corp. Ltd. (OCBC) has significantly lowered its economic growth forecast for the Philippines, warning that the country’s vulnerability to stagflationary pressures and early signs of economic strain could result in its weakest growth pace since the peak of the Covid-19 pandemic.

In a June 19 report, OCBC Group Research senior Association of Southeast Asian Nations (ASEAN) economist Lavanya Venkateswaran and ASEAN economist Jonathan Ng warned in their outlook for the second half of 2026 that the Philippines is facing stagnating output growth and overheating inflation following a disappointing first-quarter gross domestic product (GDP) outturn.

“As a result, we have sharply revised our GDP growth forecast downward to 3.8 percent year-on-year in 2026, amid a significantly higher inflationary environment,” the economists said. If realized, the below-target GDP expansion would mark a sharp slowdown from the 4.4-percent growth rate in 2025.

This projection would fall comfortably within the government’s freshly lowered growth assumption for this year. Department of Economy, Planning, and Development (DEPDev) Secretary Arsenio M. Balisacan disclosed last Monday, June 22, that the economic team is now looking at growth of 3.5 to 4.5 percent.

While aligning with government assumptions, OCBC’s revised projection would mark the weakest growth in six years, since the 9.5-percent annual contraction recorded in 2020.

This slowdown is characterized by a “compound shock” involving domestic energy limitations and external supply chain disruptions.

OCBC pointed out that GDP growth slowed to 2.8 percent in the first quarter even as domestic final demand had a higher contribution to overall output expansion during the period, rising to 2.4 percentage points (ppt) from 1.5 ppt in the previous quarter.

The Singaporean lender said persistent price pressures remain a major drag on the economy, prompting it to raise its inflation forecast to 5.8 percent in 2026, implying that consumer prices will remain “elevated and stay above the six-percent handle for the remainder of the year.”

This would also exceed the four-percent target ceiling set by the Bangko Sentral ng Pilipinas (BSP).

According to OCBC, the inflationary spike stemmed from rising energy and food costs. Rice inflation accelerated to 15.6 percent year-on-year in May from 13.7 percent in the previous month. Rice accounts for almost a tenth of the consumer price index (CPI) basket.

To curb overheating prices, OCBC anticipates further hawkish intervention from the policy-setting Monetary Board (MB).

“We expect the BSP to step up against rising price pressures. We expect a cumulative 75 basis points (bps) of rate hikes over the rest of 2026, bringing the policy rate to 5.5 percent by year-end,” the OCBC economists said.

Last week, the BSP delivered its second interest rate hike this year, raising the policy rate by 25 bps to 4.75 percent from 4.5 percent previously due to lingering price pressures.

OCBC added that “the balance of risks is skewed towards more, rather than fewer hikes, given that the BSP will not risk allowing inflation expectations to become deanchored.”

BSP Governor Eli M. Remolona Jr. has said the central bank is not overly concerned about inflation becoming deanchored.

On the fiscal side, the Marcos Jr. administration has rolled out measures to cushion Filipino households from the impact of the Middle East conflict on the domestic economy. These include the temporary suspension of excise taxes on liquefied petroleum gas (LPG) and kerosene for one quarter.

Despite these measures, the macroeconomic landscape remains clouded by structural and political uncertainties.

OCBC warned that “the political noise remains high as the Duterte and Marcos feud continues to fuel headlines. These [political tensions] risk distracting from growth and price mitigation priorities at a time of heightened domestic and external vulnerabilities.”