Philippine Q1 growth may slow amid Iran war

By Justine Irish D. Tabile, Senior Reporter

THE PHILIPPINE ECONOMY likely slowed in the first quarter as the prolonged Middle East war weighed on activity, with growth expected to fall below recent quarters and miss the government’s full-year target, the Economy chief said.

Economy, Planning, and Development Secretary Arsenio M. Balisacan said the economy is unlikely to meet the 5% to 6% growth goal this year due to external shocks and lingering domestic issues.

“It would be, given this unforeseen development,” he told reporters on Wednesday, referring to the US-Israel war on Iran. “And we’re trying to recover from the infrastructure issue last year, and then we’re hit again by even more serious problems.”

“It’s understandable that you can’t expect it to be better than what you had in previous quarters, given these shocks,” he added.

The economy grew 4.4% in 2025 — the slowest in five years — weighed down by weaker investment sentiment after a corruption scandal tied to flood control projects. The controversy implicated government officials, lawmakers and contractors, dampening business confidence.

Mr. Balisacan said global conditions have also worsened, citing downgraded growth forecasts from multilateral institutions.

“The global picture shows that growth expectations have been reduced,” he said, citing forecasts by the World Bank and International Monetary Fund (IMF).

The World Bank and IMF trimmed their 2026 growth forecasts for the Philippines to 3.7% and 4.1%, respectively.

The Development Budget Coordination Committee (DBCC) is expected to review its macroeconomic targets after the release of first-quarter data scheduled for May 7.

“Our practice is to do those reviews as soon as we have the economic performance report… maybe a week or two after that,” Mr. Balisacan said.

The DBCC had lowered its growth targets in December to reflect the impact of the infrastructure controversy, setting a 5% to 6% goal for 2026 from 6% to 7%.

Rising oil prices due to the Middle East war have added pressure on the economy. The Philippines, which relies heavily on imported fuel, has been hit by higher energy costs and tighter supply conditions.

The government declared a one-year state of national energy emergency and suspended excise taxes on kerosene and liquefied petroleum gas to cushion the impact on consumers.

“Most of our fuel needs… come from the Middle East, directly or indirectly,” Mr. Balisacan said. “So, we were affected by the ����dz����.”

Authorities have rolled out targeted subsidies and support measures to mitigate the impact on vulnerable sectors.

“So, what we have been doing… is to ensure that the economy is not severely slowed down by this shock,” he said, adding that protecting low-income households remains a priority.

Despite near-term challenges, Mr. Balisacan expressed confidence in a recovery once external pressures ease.

“But the most important thing is that we will be able to recover as soon as this shock is over,” he said.

The Philippines remains reliant on fossil fuels, with renewable energy accounting for only 26% of the power mix — close to the government’s 35% target by 2030.

Also on Wednesday, the Asian Development Bank (ADB) said economies in Asia and the Pacific, including the Philippines, should prioritize stabilization over suppressing price signals amid rising energy costs.

“Allowing higher energy prices to pass through, at least in part, can encourage energy conservation, fuel switching and investment in alternative energy sources,” it said in a policy brief.

The multilateral lender said fiscal support should be targeted and time-bound, with priority given to vulnerable households and heavily affected industries.

The ADB also cautioned against aggressive policy tightening, warning that it could worsen growth pressures and heighten financial market volatility.

It said governments might consider demand-side measures such as temperature mandates and incentives for public transport use to curb energy consumption.

In its April Asian Development Outlook, the ADB lowered its 2026 growth forecast for the Philippines to 4.4% from 5.3%.

It also cut its growth projection for Asia and the Pacific to 4.7% from 5.1%, reflecting broader economic headwinds.