Deutsche Bank cuts Philippine growth forecast to 3.5% after weaker Q2
EM - News Moderator 
By Katherine K. Chan, Reporter
DEUTSCHE BANK Research cut its Philippine growth forecast for 2026, saying the economy might only reach the lower end of the government’s target even as activity is expected to recover in the second half.
In a report dated Aug. 7, Deutsche Bank Economist Junjie Huang lowered the bank’s gross domestic product (GDP) growth forecast to 3.5% from 3.7%, following weaker-than-expected second-quarter growth.
The economy expanded by just 2.3% in the second quarter, slowing from 2.8% in the first quarter and 5.4% a year earlier. It was the weakest quarterly growth since the COVID-19 pandemic.
The result was also below the 2.8% median forecast from a BusinessWorld poll of 21 economists and analysts. Deutsche Bank had expected second-quarter growth of 2.5%.
Economy Secretary Arsenio M. Balisacan attributed the slowdown largely to a contraction in public construction, which weighed on investments, and weaker household spending amid elevated inflation.
He said the economy was showing early signs of recovery but would need to grow by at least 4.4% in the second half to reach the lower end of the government’s 3.5%-4.5% full-year target.
The economy grew by an average of 2.6% in the first half.
Mr. Huang said the expected second-half recovery would depend largely on faster infrastructure spending and government subsidies to help households cope with higher prices.
“[Second-half] growth of 4.4% will be primarily supported by the expected acceleration in infrastructure spending, while government subsidies would help to ease the burden of higher prices on consumers,” he said.
The recovery faces a significant hurdle in weak government infrastructure spending. Infrastructure outlays fell for an 11th straight month in May, declining 35.3% year on year to P80.1 billion, based on the latest Department of Budget and Management data.
Infrastructure spending in the first five months also plunged 42.9% to P269.4 billion from a year earlier.
Bank of America (BofA) Securities was more cautious, keeping its 2026 growth forecast at 2.5% and its 2027 forecast at 3.5%.
“The rate of GDP growth in [the first half] is in line with our full-year 2026 forecast of 2.5%, which implies growth in [the second half] would be broadly similar,” said Jojo Gonzales, a research analyst at BofA’s research partner Philippine Equity Partners.
He said lower fuel prices and higher minimum wages could eventually support industrial activity and consumption, although their impact might only become visible toward the end of the year.
Meanwhile, Deutsche Bank expects inflation to ease but remain above the Bangko Sentral ng Pilipinas’ (BSP) target. It now sees inflation at 5.4% by yearend, down from its previous 6% forecast, and expects 2027 inflation at 4%, slightly below its earlier 4.1% projection.
Inflation eased for a third straight month to 6.2% in July as transport prices declined and food inflation stabilized. Year-to-date inflation stood at 5%, above the central bank’s 3% target and 4% ceiling.
Deutsche Bank expects inflation to continue easing through September on favorable base effects, particularly for food excluding rice. It also expects Brent crude to remain at $75-$80 per barrel through yearend.
Still, Mr. Huang warned that the Middle East war-driven oil shock continues to feed into domestic prices, with the Philippines’ price diffusion index remaining elevated at 82 in July, only slightly below June’s 83.
“This implies that 80% of the items in the Philippines’ CPI (consumer price index) basket by weight are seeing above-trend inflation,” he said, indicating that price pressures remain broad-based.
Deutsche Bank continues to expect two more 25-basis-point (bp) rate hikes, which would bring the policy rate to 5.25%, although it said the final increase could be delayed if inflation continues to ease.
BofA, meanwhile, expects one final 25-bp hike this month, which would mark the end of the BSP’s tightening cycle.
The Monetary Board has raised its benchmark rate twice this year by 25 bps, bringing it to 4.75% in June.
The BSP has three remaining policy reviews this year, scheduled for Aug. 27, Oct. 22 and Dec. 17.
