President Marcos’ economic team downgraded its growth targets and raised its inflation forecasts for the year due to heightened domestic governance issues, geopolitical tensions in the Middle East, and the looming El Niño phenomenon threaten to disrupt the country’s economic momentum.

The inter-agency Development Budget Coordination Committee (DBCC) announced Wednesday, July 8, that it now expects gross domestic product (GDP) to expand by 3.5 percent to 4.5 percent in 2026, a sharp moderation from previous expectations, before recovering to a pace of five percent to six percent between 2027 and 2030.

The revised targets signal that economic managers are bracing for persistent supply-side pressures and elevated global fuel prices that are poised to temper household consumption and investments, which are traditional engines of the economy.

Meanwhile, inflation is projected to average an elevated six percent to seven percent this year, reflecting the secondary economic shocks of conflict in the Middle East. Price growth is only anticipated to ease to four percent to five percent in 2027, before finally settling back into the government’s preferred two percent to four percent target band in 2028 through 2030.

Adding to the domestic headwinds is a severe foreign exchange revision; the DBCC now projects the peso to weaken significantly, averaging ₱60 to ₱62.00 against the United States (US) dollar through 2030.

To counter these pressures, the government is adjusting its fiscal consolidation strategy. Total revenue collections are projected to reach ₱4.81 trillion in 2026 and scale up to ₱6.52 trillion by 2030, anchored by aggressive tax reforms, including the value-added tax (VAT) on Digital Services Act and the new Mining Fiscal Regime.

Concurrently, national spending is budgeted to hit ₱6.47 trillion this year, translating to a fiscal deficit of 5.4 percent of GDP. The DBCC aims to gradually narrow this budget gap to 3.5 percent of GDP by 2030.

For the upcoming fiscal cycle, economic managers unveiled a proposed ₱7.2 trillion national budget for 2027, representing 21.7 percent of the country’s GDP.

The spending plan centers on streamlining redundant public programs and eliminating unnecessary recurring expenses to redirect capital toward vulnerable sectors and major infrastructure projects. Despite the near-term downgrade, officials maintained that the country’s strong macroeconomic institutions and sufficient policy space will preserve investor confidence and shield the economy from a deeper downturn.