The Philippines faces a difficult policy balancing act as elevated inflation, weak public investment, and growing pressure on service exports threaten to weigh on economic growth, according to the ASEAN+3 Macroeconomic Research Office (AMRO).
AMRO said high energy prices have intensified inflationary pressures, while infrastructure delays contributed to a 31.5-percent year-on-year contraction in public construction in the first quarter. The IT-BPM sector is also increasingly exposed to artificial intelligence-driven automation, with ICT and other business service exports posting their slowest growth in five years.
“The downside risks remain significant, but the challenge is not simply to provide more policy support, it is to calibrate that support carefully,” AMRO economists Choon Sung Lim and Jinho Choi said in a report.
AMRO expects inflation to average 6 percent in 2026 and remain above the Bangko Sentral ng Pilipinas’ 2-percent to 4-percent target in 2027, complicating monetary policy as authorities confront slowing growth.
The regional economic monitor recommended that the BSP maintain a gradual, data-dependent approach, warning that aggressive tightening could further weaken growth, while premature easing could unanchor inflation expectations.
On the fiscal side, AMRO urged the government to maintain targeted assistance for vulnerable households while preserving fiscal consolidation and accelerating well-governed infrastructure spending.
Longer term, AMRO called for stronger infrastructure and digital connectivity, workforce upskilling, and a sharper growth strategy focused on sectors where the Philippines has comparative advantages.
It also recommended attracting more private investment, reducing legislative bottlenecks, and improving access to long-term financing.
AI-driven electronics exports and steady remittances should provide some buffer, AMRO said. But maintaining macroeconomic stability while sustaining investment and reforms will be critical to preventing current shocks from becoming longer-term constraints on growth.
The report underscores the need for policymakers to manage immediate inflation pressures without sacrificing investments needed to lift the economy’s longer-term productive capacity.
