Economist: MidEast war clouds growth momentum

The Middle East conflict of 2026 has given Filipinos a crash course in economics. Spiking oil prices have dominated headlines over the past three weeks, with rising inflation, a weakening local currency, and the risk of slower economic growth compounding public concern over the state of the economy.

For Bank of the Philippine Islands (BPI) senior vice president and lead economist Emilio “Jun” S. Neri Jr., a prolonged escalation of the conflict could further dampen economic growth in 2026, potentially pulling gross domestic product (GDP) back to 2025 levels, which already fell short of expectations.

“Already on our third week, if this drags on by another one and a half weeks, growth this year will, together with household consumption numbers, sink even further from our original projection of 5.1 percent growth in 2026. It would get closer to last year’s disappointing 4.4 percent,” Neri said on an 18 March episode of the DAILY TRIBUNE program Straight Talk.

Economic growth last year was dampened by weaker infrastructure investment and declining investor confidence, largely attributed to the flood-control corruption 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.

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

Neri, who has been with BPI for nearly two decades, has released several statements on the conflict since its escalation at the beginning of March. The economist said previously that inflation may spike to 4 percent as early as next month, nearly double February’s rate, as oil prices are expected to rise to P130 per liter this week.

Currency takes blow from crisis

Meanwhile, the local currency has weakened to record lows four times over the past two weeks, breaching the dreaded P60-per-dollar level last Thursday. Neri said that the ongoing conflict has thrown a wrench into the planned economic recovery for the second half of 2026.

“We ran past 2025, 4.4 percent for the whole year, marked by a slowdown of just 3 percent for the fourth quarter. That’s disappointing, but only half of the potential of the Philippines, about 6 to 7 percent. So we’re grappling with that, and all of a sudden, this new intense challenge suddenly crops up,” he said.

“We all know that the reason for the slowdown in 2025 was related to investigations in the flood control program, and there seems to have been a plan to try and make up for the losses as a result of that investigation. We were expecting some kind of recovery in the first half of this year, but stronger in the second half, as the budget of the government has been aligned away from public works toward education,” he added.

Finance Secretary Frederick Go said last week that the government is looking to procure up to 2 million barrels of oil to increase the country’s stockpile, noting that both Congress and the Senate are working on legislation granting the President provisional powers to reduce excise and value-added taxes on oil products.

Neri added that while the temporary suspension of such taxes may provide Filipinos with some relief, longer-term measures are needed to shield the economy from the war’s prolonged consequences.

“I think it makes sense that we get that approved, especially since there is a fear that we could actually have a shortage of oil products. The stoppage or the congestion or the problem with the Strait of Hormuz is really serious… because it is unclear whether this is going to be a short or extended conflict at this point,” he said.

“Now it’s time to think of purchasing wind power from abroad, purchasing other forms of energy, or securing other forms of energy, not just the traditional ones. Again, to ensure that businesses and the livelihood of people can continue in case this conflict goes on,” Neri added.

The economist also said that rising inflationary pressures resulting from the conflict’s effect on global oil prices may limit the Bangko Sentral ng Pilipinas’ (BSP) room for monetary policy easing, which it has pursued twice over the past few months in response to the weak 2025 growth.

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

Interest rate cuts by the central bank 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.

“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 percent 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 percent again as we move along,” he added.

As the Middle East conflict persists with no immediate end in sight, the country continues to grapple with the fallout of both domestic and external economic shocks.

“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.”