The Asian Development Bank (ADB) slashed its Philippine economic growth forecast to 3.8 percent this year, which, if realized, would be the country’s slowest post-pandemic expansion amid delayed investments, higher inflation, and risks from climate shocks.

In its Asian Development Outlook (ADO) report for July 2026 published last Wednesday night, July 8, the Manila-based multilateral lender sharply cut its 2026 gross domestic product (GDP) growth projection for its host country from 4.4 percent previously.

The latest forecast is within the government’s downgraded GDP growth target range of 3.5 to 4.5 percent for this year, but below the 4.5-percent average expansion projected for the Association of Southeast Asian Nations (ASEAN).

“Among major economies in the subregion, the Philippines saw a downward adjustment in growth projections due to delayed investments, softer private consumption amid higher commodity prices, and climate-related risks,” the ADB said.

The lender also trimmed its Philippine GDP growth forecast for 2027 to 5.3 percent from 5.5 percent previously, still within the government’s five- to six-percent target for next year.

The downgrade followed a marked slowdown in the Philippine economy, which grew by just 2.8 percent in the first quarter as the country continued to deal with the lingering impact of the multibillion-peso flood-control infrastructure corruption scandal.

Manila Bulletin earlier reported that the ADB had tightened oversight of its Philippine projects in the aftermath of the flood-control controversy following “grave corruption concerns.”

The ADB specifically pointed to weak government spending on infrastructure as an investment drag during the first quarter, as construction also contracted for a third straight quarter.

According to the ADB, investment strengthened across much of developing Asia-Pacific on capital spending related to artificial intelligence (AI), but weakened in the Philippines due to low public infrastructure spending.

The ADB said its 2026 growth forecast for developing Southeast Asia was trimmed following downward revisions for the Philippines and Cambodia as higher global energy prices caused by the ongoing war in the Middle East weigh on domestic demand and tourism.

Meanwhile, the ADB raised its Philippine inflation forecast for 2026 to 5.9 percent from four percent previously—the biggest upward revision among developing Southeast Asian economies.

The 1.9-percentage-point (ppt) increase in the Philippine forecast was followed by Cambodia’s 1.7-ppt upward revision to 4.5 percent, and Thailand’s 1.6-ppt increase to 2.9 percent.

The ADB’s 2026 inflation forecast for the Philippines is slightly below the government’s revised six- to seven-percent target range for this year. Headline inflation averaged 4.8 percent in the first half of 2026.

For 2027, the lender also hiked its Philippine inflation projection to 3.9 percent from 3.5 percent previously, also slightly below the government’s revised four- to five-percent target range for next year.

The government aims to bring inflation back to the two- to four-percent annual target range deemed manageable and conducive to economic growth from 2028 to 2030.

The ADB said the upward revisions to inflation forecasts in developing Southeast Asia reflected higher global energy and food prices linked to the Middle East conflict, as well as exchange rate pressures that have raised import costs across the subregion.

Inflation breached the target range in the Philippines in early 2026 and remained above target, prompting regional central banks, including the Bangko Sentral ng Pilipinas (BSP), to adopt more guarded monetary policies amid what the ADB described as an “increasingly challenging growth-inflation trade-off.”

Between April and June, the BSP hiked key interest rates by a total of 50 basis points (bps), bringing the policy rate to the current 4.75 percent, as monetary authorities sought to contain inflation while limiting the drag on economic growth.

The ADB also noted that sovereign bond yields continued to rise from late February after the war erupted, with increases higher in economies facing stronger price pressures, like the Philippines and Türkiye.

The report, which tracked changes in 10-year government bond yields, showed that the Philippines posted the third-fastest increase among eight developing Asia-Pacific economies from Feb. 28 to June 22, behind Türkiye and Indonesia.

The sharp increase in Philippine bond yields reflected a steep rise in government borrowing costs during the period as expectations of persistent inflation and a more hawkish monetary policy stance by major central banks tightened global financial conditions as the war between the United States (US) and Iran raged on.