September 15, 2026 l Manila Bulletin
The Iran war, the recent Nepal tragedy, nonstop rains for a month, political noise—some don’t want to listen to the news anymore. But we need to know what’s happening to the economy and what to expect as we enter another budget season.
Alvin Arogo—Philippine National Bank’s (PNB) chief economist, head of PNB’s Research Division, and recipient of the Best Investment Research in the Philippines award from the Euromoney Awards for Excellence in 2026 (following consecutive wins from the Euromoney/Asiamoney Private Banking Awards from 2021 to 2025)—has this to say:
The Philippine economy entered the second half of 2026 in a difficult position. Gross domestic product (GDP) growth slowed to a post-lockdown low of 2.3 percent year-on-year in the second quarter, down from 2.8 percent in the first, bringing first-half growth to only 2.6 percent. Household consumption expanded by a subdued 2.8 percent, while capital formation contracted by 9.2 percent. Construction fell by 14.8 percent, weighed down by a 32.4 percent decline in public construction. This reflects the adverse impact of the unresolved probe into ineffective flood control projects. These figures suggest that the weakness was not merely statistical; domestic demand and investment were under genuine strain.
A potential bright spot in the construction industry is Megawide’s partnership with Pag-IBIG under the expanded Pambansang Pabahay program, which could provide momentum through the development of socialized housing units.
Inflation remains a concern. While it eased to 6.1 percent in August, it remained higher than the Bangko Sentral’s four percent threshold, primarily due to the spike in oil prices from the Iran conflict. The BSP raised its policy rate by 25 basis points—bringing total rate hikes to 75 basis points since April—to reach five percent. This expanded the interest rate differential relative to the US dollar to 150 basis points. While this was intended to prevent further weakness in the peso, the currency instead hit a new record low of ₱62.7 to the dollar. It appears the market was more concerned with prospects of the Philippines’ widening balance of payments deficit, which the BSP forecasts will widen to -2.1 percent of GDP in 2026 from -1.2 percent in 2025.
This makes the oil outlook critical. Alvin notes that what may turn the tide is the United States congressional midterm elections on Nov. 3. Higher fuel prices and declining public support for the conflict could increase Washington’s incentive to avoid further escalation, putting more emphasis on restraint and economic pressure rather than military action. While there is no guarantee of a settlement—since Iran’s responses remain outside Washington’s full control—even a partial de-escalation could lower global oil prices.
For the Philippines, a sustained decline in oil prices would improve several macroeconomic channels at once. As a net oil importer, a decline means a smaller import bill and reduced demand for US dollars. Lower petroleum prices would also ease transport and electricity costs, slow inflation, and improve market expectations for domestic interest rates. Together, these effects could support an appreciation of the peso. The magnitude will still depend on global dollar movements, the BSP’s policy stance, foreign portfolio flows, and the credibility of any ceasefire agreement.
Importantly, the economy’s weak headline growth does not tell the whole story. Eleven of the 16 major production sectors outperformed overall GDP in the second quarter. Education grew by 12.7 percent, while human health and social work rose by 10.4 percent—a very positive sign of a population prioritizing spending on the body and the mind. Other industries that performed well included wholesale and retail trade (4.6 percent), public administration and defense (4.5 percent), utilities (4.0 percent), professional and business services (3.9 percent), and transportation and storage (3.8 percent). Financial and insurance activities, information and communication, agriculture, and manufacturing also expanded faster than the broader economy. Stripping away spikes in commodity prices like oil, exports grew by 12.2 percent, outpacing the 5.5 percent increase in imports.
These industries provide clues about where sustainable growth may emerge, spanning electronics, logistics, digital connectivity, financial services, healthcare, and education. Their resilience does not eliminate the weakness in construction or durable equipment investment, but it shows that productive capacity and demand remain alive in key parts of the economy.
Alvin’s outlook for 2027 is cautiously hopeful, with GDP growth potentially accelerating to 5.5 percent (from 3.4 percent in 2026) and inflation moderating to four percent (from 5.5 percent). A recovery is possible if inflation continues to ease, geopolitical tensions soften, the peso stabilizes or appreciates, and investment begins to normalize. None of these conditions are assured, but the economy is not starting from a position of irreversible weakness either. The task for policy is to convert these pockets of resilience into a broader, more durable recovery.
***The views expressed herein are her own and do not necessarily reflect the opinion of her office as well as FINEX. For comments, email ftarriela@yahoo.com. Photo is from Pinterest.