Elevated energy costs, weak investment, and softer domestic demand are slowing the Philippines’ recovery from its recent growth slump, according to Singapore-based United Overseas Bank Ltd. (UOB), warranting continued monetary policy tightening by the Bangko Sentral ng Pilipinas (BSP).

In its July 2026 Association of Southeast Asian Nations (ASEAN)-6 dashboard, UOB noted that the country’s economic trajectory is facing strong headwinds that threaten its post-slump rebound.

“The Philippines’ recovery is losing momentum, with growth slowing amid rising energy costs, weak investment, and softer consumption,” the report said. Domestic economic growth slowed to a five-year low of 4.4 percent in 2025 amid dampened confidence due to the flood-control fiasco.

The growth slowdown continued in the first quarter of 2026, with the economy expanding by 2.8 percent. The Marcos Jr. administration lowered its growth assumption to 3.5 to 4.5 percent from five to six percent previously as governance concerns converged with Middle East war-driven supply shocks.

UOB analysts consequently expect weaker economic growth, forecasting gross domestic product (GDP) growth of just 3.2 percent for the full year 2026, a notable decline from the 2025 print. It would also fall below the lower end of the government’s revised target range.

UOB’s quarterly projections showed that Philippine growth is expected to slow further to two percent in the second quarter before gradually recovering to 3.8 percent in the third quarter, and 4.3 percent in the fourth quarter.

The 3.2-percent annual projection places the Philippines near the bottom of the region, outperforming only Thailand’s 1.9 percent. However, ASEAN-6 peers such as Vietnam (8.5 percent), Indonesia (5.2 percent), Malaysia (4.5 percent), and Singapore (four percent) are all expected to post stronger growth.

To manage a mix of pressures, the BSP is expected to maintain its hawkish tilt, though at a measured pace to avoid further stifling economic activity. The BSP raised the key borrowing rate to 4.75 percent in June to tame consumer price growth, which peaked at 7.2 percent in April.

Despite signaling a hawkish direction, monetary authorities are expected to take into account the looming weak GDP expansion. “Weak growth will likely keep policy adjustments gradual,” UOB said.

Specifically, the Singaporean lender projects a 25-basis-point (bp) rate hike in the third quarter of 2026, which would lift the benchmark policy rate to five percent from the current level.

Frankfurt-based Deutsche Bank AG holds a more hawkish stance on policy, believing the BSP will raise rates by a quarter point to five percent in August and by another quarter point in October. The lender pointed to deepening underlying price pressures.

The urgency of further monetary tightening is underscored by inflation, which remains the highest in the region. Despite easing from the April level, May headline inflation of 6.8 percent still marked the highest rate among its ASEAN-6 peers.

UOB expects the hiking cycle to peak at five percent, followed by a pause through the end of the year.

Additionally, the Philippine peso has been caught in the crossfire of global and domestic volatility. The local currency has struggled against a resurgent United States (US) dollar, weakening by 4.1 percent since January. UOB projects the exchange rate to reach ₱62:$1 in the third quarter.

According to the report, the depreciation of the peso was driven by “high oil prices, external headwinds, and political uncertainty,” adding that limited support from BSP policy would pressure the peso through the third quarter before it gradually stabilizes in the fourth quarter.

Immediate market swings are also compounded by continued long-term structural risks. UOB warned that “ongoing external shocks and governance challenges are expected to weigh on the outlook, keeping growth subdued.”

These external shocks include trade-related vulnerabilities, such as a proposed 12.5-percent tariff on US-bound Philippine exports amid concerns over forced labor.