Stalled wage adjustments may have to wait longer for a rebound in Philippine economic growth after the Singapore-based ASEAN+3 Macroeconomic Research Office (AMRO) lowered its growth forecast for the country below the government’s annual targets.

Citing weaker private consumption and muted domestic investment, AMRO forecasts local gross domestic product (GDP) to expand by 3.4 percent this year, down from its July outlook of 4.1 percent. AMRO has also tweaked its 2027 growth projection downward to 4.8 percent from 5.5 percent previously.

Both estimates, if realized, would fall short of the government's minimum GDP growth targets of 3.5 percent for 2026 and 5.0 percent for 2027.

“Growth this year will be weighed down by weaker private consumption amid higher inflation and subdued investment, although a gradual recovery in public construction in the second half of the year and resilient exports should provide some support,” AMRO group head and lead economist Jinho Choi told an Aug. 27 press briefing.

“Extreme weather events, including the potential emergence of a very strong El Niño, could disrupt agricultural production, raise food prices, and weigh on economic activity,” Choi added.

AMRO chief economist Dong He struck a cautious tone on implementing wage hikes while the economy struggles to reach its potential.

“Wage growth should be commensurate with productivity growth in the long term,” He said during the press briefing. Without citing a specific figure, He noted that the rate of increase should be assessed against prevailing economic conditions.

“Otherwise, too high a rate of wage growth will contribute to core inflationary pressures, and in the end, that’s bad for [real] income growth and for others who are not necessarily benefiting from the same rate of increase,” He said.

Domestically, the government’s plan to implement a historic ₱85 wage hike has been stalled by court disputes.

“This is an economy that’s probably still operating somewhat below potential output growth, so there may be a negative output gap. In this kind of environment, I think one should be cautious about the rate of wage growth,” He said.

According to the Bangko Sentral ng Pilipinas (BSP), the Philippines’ potential growth stands between 5.0 and 6.0 percent. Domestic GDP growth slumped to a post-pandemic low of 2.3 percent in the second quarter, down from 2.8 percent in the first quarter.

He clarified that his remarks were general macroeconomic observations, noting that rapid wage growth may not be justified in an environment with a likely negative output gap.

On consumer prices, AMRO expects inflation to settle lower at 5.4 percent this year, down from its July forecast of 5.7 percent. AMRO also lowered its 2027 inflation forecast to 3.8 percent from 4.1 percent previously.

Core inflation, which monetary authorities track closely when setting monetary policy, eased to 4.2 percent in July from 4.4 percent in June. AMRO expressed uncertainty over whether this trend “has peaked out or if it’s going to be a temporary moderation.”

He noted that while AMRO revised down its global oil price assumptions, ongoing conflict in the Middle East poses an upside risk. He added that the potential impact of a severe El Niño and the minimum wage hike have not been fully incorporated into the forecast.

AMRO advised that local monetary authorities should remain open to further tightening if underlying core prints remain sticky or if inflation expectations destabilize. “Further rate hikes would be warranted if core inflation remains elevated and persistent or inflation expectations show signs of becoming de-anchored,” the agency said.