Manila Economy Set to Expand 5.5% Next Year Despite Sticky Inflation

Growth Trajectory Holds Firm

The ASEAN+3 Macroeconomic Research Office left its economic expansion estimates for the Philippines unchanged in its latest regional outlook, projecting 4.1 percent growth this year and 5.5 percent in 2027. The July update marks no revision from figures released a month earlier, even as the office adjusted its view on consumer prices downward.

Manila's output expanded just 2.8 percent in the first quarter, the weakest pace in five years, yet the full-year forecast sits within the government's revised 3.5 to 4.5 percent band. Next year's projection aligns with the official 5 to 6 percent target corridor. Last year the economy grew 4.4 percent.

AMRO chief economist Dong He pointed to the Philippines' role in global semiconductor supply chains as a stabilizing factor. The country ships electronic components that feed artificial intelligence infrastructure buildouts, linking a service-export economy to hardware cycles in ways that sustain outbound sales momentum.

Inflation Estimate Trimmed

The research office now expects consumer prices to rise 5.7 percent across 2026, down from a June estimate of 6 percent. That revised figure still runs well above last year's 1.7 percent average, reflecting lingering pressure from the oil shock that hit Manila harder than most regional peers.

Price growth eased to 6.4 percent in June from 6.8 percent the prior month. The first-half average of 4.8 percent sits outside the central bank's 2 to 4 percent target range. AMRO held its 2027 inflation forecast steady at 4.1 percent.

He credited the Bangko Sentral ng Pilipinas with swift monetary tightening that contained broader price pressures once energy costs spiked. Lower baseline assumptions for crude now underpin the trimmed inflation view, he said.

Tariff Impact Contained

Washington's new 12.5 percent duty on Philippine goods, applied after a 10 percent global levy expired last week, is unlikely to materially alter the outlook, according to He. Regional supply chains have reconfigured since reciprocal tariffs began in April 2025, absorbing much of the uncertainty that initially roiled cross-border flows.

Private-sector actors shifted production footprints and sourcing patterns over the past 15 months, He noted, leaving the bloc better insulated from fresh trade friction. AMRO sees no reason to revise its assessment on tariff-related risks.

Weather and Geopolitics Loom

Food costs remain a flashpoint. He flagged El Niño conditions as a potential driver of agricultural price swings, noting that staples carry significant weight in the consumer price index basket. Vigilance on crop output and food inflation will be essential in coming months, he said.

Allen Ng, who leads regional surveillance at AMRO, identified the trajectory of Middle East hostilities and the durability of AI investment as the two most salient risks to growth across the ASEAN+3 region. Financial market volatility and additional protectionist measures also warrant close monitoring by policymakers, he added.

Manila's challenge lies in navigating external shocks while domestic demand recovers. The interplay of global tech spending, energy markets, and weather patterns will shape whether the economy can meet mid-single-digit expansion targets through next year.