IMF cuts Philippine GDP forecasts for 2026 and 2027, flags property sector drag

The IMF has lowered its Philippine GDP growth forecast for 2026 to 3.4% from 3.9%, and for 2027 to 5.1% from 5.5%. The downgrade follows weak second-quarter growth and renewed shocks from the Middle East war, with the protracted property sector slowdown cited as a contributing factor.

The International Monetary Fund (IMF) has slashed its growth projections for the Philippines for 2026 and 2027, citing the economy's dismal second-quarter performance and renewed shocks from the Middle East war. In a statement following its recent Article IV Consultation, the IMF said it now expects Philippine gross domestic product (GDP) to expand by 3.4% this year, down from its earlier estimate of 3.9%. That is marginally below the government's 3.5-4.5% growth target for 2026, and slower than the 4.4% expansion recorded last year.

For 2027, the Washington-based lender cut its GDP growth forecast to 5.1% from 5.5%, attributing the revision to soaring prices amid the Middle East war and a slow rebound in public investment. The 2027 projection remains within the government's 5-6% target for the period 2027 to 2030. If the 2026 forecast holds, the Philippines would post its weakest growth since the pandemic, and excluding the pandemic years, the slowest expansion in 17 years, since 2009 when GDP growth was 1.4%.

IMF Mission Chief for the Philippines Andrea Pescatori told a press briefing in Manila that the downgrade was largely driven by weaker-than-expected growth in the second quarter, when the economy posted a post-pandemic low of 2.3%. Weak investments due to last year's flood control issues contracted public construction, while red-hot inflation squeezed household spending. Mr Pescatori said the "protracted property sector slowdown added to the drag" in the second quarter as vacancy rates remained elevated, though he added the IMF does not see a deterioration of the property market, only that it is not making a positive contribution to growth.

The outlook for the real estate sector remains gloomy, with Mr Pescatori noting that rising borrowing costs may derail the sector's rebound. He warned that if the slowdown drags on, the country's financial stability could also be imperilled. The IMF also trimmed its inflation estimate for 2026 slightly to 5.6% from 5.7%, but raised its 2027 forecast to 4.1% from 3.3%, driven by renewed pressures from oil and food, particularly rice, which accounts for around 12% of the consumer basket.

Mr Pescatori said spiralling oil prices may prompt the Bangko Sentral ng Pilipinas (BSP) to raise its policy rate by another 25 basis points this year. The BSP began tightening monetary policy in April, raising its benchmark interest rate by a cumulative 75 basis points as of August to an over one-year high of 5%. The IMF official noted that inflation may moderate by the second half of next year, easing toward the BSP's target of 3.2% in 2028.