Singapore-based ASEAN+3 Macroeconomic Research Office (AMRO) retained its 4.1-percent economic growth forecast for the Philippines this year while trimming its inflation projection, saying the economy continues to benefit from the artificial intelligence (AI) boom despite subdued private investment and heightened vulnerability to oil price shocks stemming from the war in the Middle East.

If realized, the projected gross domestic product (GDP) expansion for 2026 would mark the Philippines’ slowest annual post-pandemic growth, lower than last year’s 4.4 percent. Still, it falls within the government’s downgraded growth target of 3.5 to 4.5 percent for 2026. AMRO also kept its 2027 Philippine growth projection at 5.5 percent.

In the July update of its flagship ASEAN+3 Regional Economic Outlook (AREO), the regional surveillance organization likewise lowered its Philippine inflation forecast for 2026 to 5.7 percent from the six percent projected in its June interim update, reflecting lower global oil price assumptions. Even so, this would still be sharply higher than the 1.7-percent average headline inflation recorded in 2025. Its 2027 inflation forecast was unchanged at 4.1 percent, still above the government’s two- to four-percent target band of annual price increases deemed manageable and supportive of economic growth.

During a virtual press briefing on Monday, July 27, AMRO chief economist Dong He said the Philippines remains among the economies in the region most affected by oil price shocks stemming from the Middle East conflict, resulting in slower growth and significantly higher inflation this year than in 2025. He said the relatively rapid pass-through of higher energy prices to consumers partly reflected the government’s limited fiscal measures to cushion the impact, although the Bangko Sentral ng Pilipinas’ (BSP) prompt monetary tightening helped prevent broader inflationary pressures. With oil prices now expected to be lower than assumed in June, AMRO consequently trimmed its Philippine inflation forecast for this year.

Despite the weaker outlook, He said the Philippines continues to benefit from the global AI investment cycle through its semiconductor exports, noting that although the economy is often viewed as services-driven, it remains closely integrated into the global AI supply chain. He said this should continue supporting the country’s export growth.

He added that the softer growth outlook mainly reflects subdued private investment, saying the Philippines should strengthen private investment to expand productive capacity, improve infrastructure, and support faster medium-term growth while making the economy more resilient against extreme weather events and natural disasters. He also said governance issues relating to infrastructure investment would need to be addressed to improve the country’s long-term growth prospects.

The comments come as the Marcos Jr. administration continues efforts to tighten oversight of public infrastructure spending following last year’s multibillion-peso flood-control corruption scandal.

Overall, He said AMRO remains “reasonably cautiously optimistic” about the country’s outlook.

Asked about the risks posed by a potential El Niño episode and the latest United States (US) tariff measures, He said AMRO does not expect the new US tariff measures to materially alter its baseline outlook, noting that businesses across the ASEAN+3 region have already adjusted their supply chains after more than a year of trade policy uncertainty. He added, however, that extreme weather remains a significant upside risk to food inflation, although the timing and magnitude of El Niño’s impact remain highly uncertain.

For the Association of Southeast Asian Nations (ASEAN)+3 region as a whole, AMRO raised its 2026 growth forecast to 4.1 percent from the four percent projected in its June interim update, citing stronger-than-expected AI-related demand and a more favorable global commodity price outlook. ASEAN+3 comprises China, Hong Kong, Japan, South Korea, and the 10 ASEAN member states. Timor-Leste, ASEAN’s newest member, is not yet included in AMRO’s regional coverage.

According to AMRO, the region has remained resilient despite the prolonged Middle East conflict, supported by firm domestic demand and robust exports of semiconductors and other AI-related products. ASEAN+3 export growth accelerated to nearly 20 percent in the first quarter, with AI-enabling products accounting for almost two-thirds of the increase. The region contributes nearly half of global AI-related exports.

Still, the regional outlook remains clouded by geopolitical and technology-related risks.

AMRO warned that a renewed escalation of the Middle East conflict could push energy, shipping, and food costs higher, while weaker-than-expected AI investment could significantly dampen exports and investment across the region. Under a scenario in which global AI-related investment slows to its 2024 pace, ASEAN+3 growth could decelerate to 2.5 percent in 2027—the weakest since the Asian Financial Crisis (AFC) outside the Covid-19 pandemic years. - Danielle T. Bayani