The Philippine economy may continue to suffer in the medium term if the Middle East conflict and the flood control scandal remain unresolved, according to the Department of Economy, Planning and Development (DEPDev).

“The country’s economic growth may further weaken if uncertainties surrounding the resolution of the Middle East crisis persist and if the lingering effects of recent corruption issues are not resolved or reversed,” the agency said in its FY 2025 Transparency and Accountability Report. “The fragile peace agreement could keep inflationary pressures elevated.”

Gross domestic product growth declined sharply in the first half of 2026, slumping to a 17-year low of 2.3 percent in the second quarter, excluding the pandemic years.

The government has attributed the slowdown to two main factors: weaker infrastructure investment amid the flood control scandal and inflationary pressures stemming from the national energy emergency.

As of press time, talks between the US and Iran have collapsed, with Washington threatening additional economic sanctions as the US naval blockade of the Strait of Hormuz remains in place.

At home, probes into the infrastructure scandal have taken a back seat to the ongoing impeachment trial of Vice President Sara Duterte, while flash flooding caused by southwest monsoon rains has further disrupted government operations.