Philippines economy growth at risk from Middle East conflict – BPI economist

The Philippines’ gross domestic product (GDP) growth—and the broader economy—faces significant risk if the Middle East conflict persists throughout the year, according to Bank of the Philippine Islands (BPI) Lead Economist and Senior Vice President Emilio S. Neri Jr.

Speaking during the 18 March episode of DAILY TRIBUNE’s program Straight Talk, Neri warned that a prolonged or escalating conflict could drag economic growth below already weak projections, potentially worsening the country’s dismal 2025 performance.

“Already on our third week, if this drags on by another one and a half weeks, this would mean growth this year will, together with household consumption numbers [would sink] even further from our original projection of 5.1% growth in 2026. It would get closer to last year's disappointing 4.4%,” Neri said.

“It's disappointing for Philippine standards. And then if this drags on for three or six months, even slower numbers have to be anticipated,” he added.

Economic growth last year was dampened by weakened infrastructure investment and declining investor confidence, partly attributed to the flood control controversy. As a result, the Philippines missed its national GDP growth target range of 5.5 to 6.5 percent—equivalent to trillions of pesos in foregone economic output, on top of the trillions allegedly lost to corruption involving government officials and contractors.

In response, the Bangko Sentral ng Pilipinas (BSP) reduced the target reverse repurchase rate (RRP) twice from December to February, for a combined 50 basis points, in an effort to stimulate consumption—the primary driver of the Philippine economy.

However, interest rate cuts can also fuel inflationary pressures by increasing liquidity in the financial system. Neri noted that the ongoing Middle East conflict has intensified these pressures, raising the possibility that the BSP may need to reverse course and consider tightening measures. He added that inflation could reach 4 percent as early as next month.

“As far as February 28th, the BSP was actually confident enough to not reduce interest rates a few weeks before the pandemic began, or having confidence that we can keep inflation below the 4% target again this year after a couple of years of achieving that peak,” he said.

“But now, BSP has to take a reverse course, and it seems to be preparing for inflation exceeding 4% again as we move along,” he added.

For its part, the BSP said in a statement issued yesterday that it is closely monitoring developments in the Middle East ahead of the Monetary Board’s next policy meeting on 23 April.

“Ahead of the monetary policy meeting on 23 April 2026, the BSP is closely monitoring the impact of the Middle East conflict on Philippine inflation and the economy,” the statement read.

“Price stability is the BSP’s main mandate. As such, the BSP is assessing the potential impact of higher oil prices on fertilizer costs, transport fares and overall inflation.”

Neri added that while rising fuel prices—and the resulting inflation—will disproportionately affect lower-income households, the broader macroeconomic impact will be felt across all sectors.

“So that's a very big challenge, that combination of high inflation and slow growth. It's actually one of the toughest [scenarios] that policymakers, both of the national government and the central bank, will have to face up to. Again, very few segments of society will be spared.”

Domestic pump prices have already risen to over P100 per liter in some areas. In response, both chambers of Congress are moving to pass legislation granting the President emergency powers to suspend excise and value-added taxes on oil products. The President has also vetoed proposed public transport fare hikes to preserve commuters’ purchasing power, while the Department of Trade and Industry has ordered retailers to hold prices steady for the next 30 to 60 days.

“In the fall quarter [of 2025], when we experienced 3% growth, it was announced very generally. Even if the index rate was already very low, 4.5%, we were compelled to hike by another 25 basis points, again, to supplement the fiscal reform without imbalancing the budget,” Neri said.

“But unfortunately, this is no longer an option, it seems. Between growth and inflation, [the BSP] will prefer managing inflation over growth. Because without stability, it's very hard to manage and sustain its growth trajectory.”