The Philippine economy is projected to post the second-highest growth in the Association of Southeast Asian Nations (ASEAN) this year, although the Middle East conflict could push inflation higher, the ASEAN+3 Macroeconomic Research Office (AMRO) said.

In its latest ASEAN+3 Regional Economic Outlook October Update released Monday, AMRO forecasts Philippine growth at 5.3 percent in 2026, second only to Vietnam’s projected 7.4 percent.

The Philippines is expected to outpace other regional peers, including Indonesia (5 percent), Cambodia (4.9 percent), Malaysia and Lao PDR (4.6 percent), Singapore (3.4 percent), Myanmar (2.5 percent), and Thailand (1.7 percent). Growth is projected to further accelerate to 5.8 percent in 2027.

In a virtual briefing, AMRO Group Head and Principal Economist Allen Ng said stronger growth could have been achieved if not for the Middle East situation.

“I think there was strong momentum in growth in the Philippines prior to the escalation of the conflict, and it’s driven a lot by domestic demand activities. So, what we have seen is that if, again, if the Iran conflict has not occurred, the growth could have been higher for the case of the Philippines,” he said.

However, Ng warned that the country’s heavy reliance on oil and gas imports from the Middle East could drive inflation upward.

AMRO now expects inflation to average 3.9 percent this year, higher than its earlier 3.2 percent forecast, before easing to 3.6 percent in 2027.

“Risks are clearly tilted to the downside if oil prices rise further and disruption becomes more prolonged. I think the key point that we wanted to highlight is the fact that, in this environment, the policy priority is really to stop a supply-driven shock from becoming broader and more persistent,” Ng said.

“That means staying alert for second round effect, with monetary policy remaining cautious, and fiscal policy focused on timely, well-targeted support for the most exposed sectors and household.”

The government has rolled out measures to cushion the impact of rising oil prices, including fuel subsidies for public utility vehicle drivers.

AMRO chief economist Dong He said the Philippines remains well-positioned to absorb external shocks.

“The Philippines economy was performing quite well last year. It has entered this period in pretty healthy conditions, so we are confident that the economy can manage this shock,” he said.

He added that, over the longer term, the country should diversify its energy sources and strengthen climate resilience to better withstand future disruptions. (PNA)