World Bank slashes PHL growth forecast to 3.7%

By Justine Irish D. Tabile, Senior Reporter

THE WORLD BANK slashed its growth forecast for the Philippines to 3.7% this year, well below the government’s target, as the war in the Middle East weighs on economic activity.

The World Bank on Wednesday said it sees Philippine gross domestic product (GDP) growth at 3.7% for 2026, significantly slower than the previous projection of 5.3%

If realized, it will also be slower than the post-pandemic low of 4.4% in 2025 and below the Philippine government’s 5-6% GDP target range for 2026.

“Our main projection is that overall growth in the East Asia and Pacific region is going to decline in 2026,” Aaditya Mattoo, director of research of the World Bank Group, said in an online briefing on the World Bank’s East Asia and Pacific Economic Update.

“Most countries in the region are going to see slower growth in 2026 than they have in 2025. That is our projection,” he added, citing the impact of the conflict in the Middle East as well as trade disruptions.

“The good news is we are likely to see a bounce back in 2027,” Mr. Mattoo said.

The World Bank raised its GDP growth projection for the Philippines to 5.6% in 2027 from 5.4% previously. It is within the government’s 5.5-6.5% target for 2027.

However, Mr. Mattoo said the Middle East war will have an impact on remittances in the East Asia and Pacific region, particularly the Philippines.

“Countries like the Philippines, which depend strongly on remittances, will see remittances from the Gulf… diminish,” he said.

Ergys Islamaj, a senior economist at the World Bank, said the Philippine economy is mainly exposed to the Middle East conflict through remittances as well as energy and fertilizer imports.

“Eighteen percent of remittances to the Philippines in 2025 came from the Gulf. Longer conflict will hurt the economy further,” he said.

In 2025, cash remittances soared to an all-time high of $35.634 billion, accounting for 7.3% of the country’s GDP. Remittances from Saudi Arabia accounted for 6.6% of the total, while the United Arab Emirates made up 4.6% and Qatar made up 2.9%.

The Philippines is a net importer of crude oil and sources most of its supply from the Middle East, making the country vulnerable to global crude price swings.

Mr. Mattoo said that global oil prices are expected to be as much as $20 higher even a year from now compared to the prices before the war broke out.

“(The) geopolitical risk has risen dramatically as well as natural gas and oil prices,” he said.

“And this oil price shock will hit the poor most because they spend a larger proportion of their income on oil,” he added.

Mr. Mattoo said that the impact of the war will be seen in higher production costs, supply chain disruptions, and tighter financing conditions.

“All of which, the uncertainty, the weak business sentiment, and the lower investment, will hurt global growth,” he said.

US TARIFFS, AI
The war in the Middle East comes as countries in the region grapple with significantly higher US tariffs.

“The problem is that countries still face higher tariffs today than they did before 2025. And the difference in tariff that a country faced and that which China has narrowed significantly. The combination…  means a negative impact on real income in a country like Vietnam, which depends a lot on its exports,” Mr. Mattoo said.

Since August 2025, the Trump administration has imposed a 19% reciprocal tariff on most goods from the Philippines, as well as Cambodia, Malaysia, Thailand and Indonesia. However, the US Supreme Court earlier this year ruled that US President Donald J. Trump had exceeded his authority when he imposed his previous tariff regime. This prompted Mr. Trump to impose a 15% tariff on all imports.

“The problem is uncertainty. You don’t know what trade policy will be, you don’t know what the world will look like,” he said.

On the other hand, Mr. Mattoo said the artificial intelligence (AI) boom has helped lift the region’s AI-related exports.

“One positive development globally has been the AI boom, and our concern is that just as the region is more exposed to the negative shocks, it might today be less equipped to take advantage of the positive benefits,” he added.

He warned that the weakness in the skills of the region’s workforce and lack of infrastructure may limit the ability of the region to take advantage of productivity gains that could come from AI.