MANILA, Philippines – Days after the Philippines finally hit upper-middle-income status, the government’s own economic managers offered a sobering outlook: growth may be slower than expected, and inflation could stay above target amid risks from oil prices, weather shocks, and “governance-related issues.”

The Development Budget Coordination Committee (DBCC), in its latest review of medium-term assumptions, now expects the economy to grow by only 3.5% to 4.5% in 2026, before recovering to 5% to 6% from 2027 to 2030.

The downgrade marks the latest retreat from the government’s earlier growth ambitions. In December 2025, the DBCC had already lowered its targets to 5% to 6% for 2026, 5.5% to 6.5% for 2027, and 6% to 7% for 2028. Those were already below the higher growth path President Ferdinand Marcos Jr. laid out early in his term.

In his first State of the Nation Address in 2022, Marcos said the government was targeting 6.5% to 8% annual real GDP growth from 2023 to 2028, alongside single-digit poverty, a lower deficit, and upper-middle-income status.

The Philippines might have achieved that last goal, but the latest DBCC forecast shows the economy is moving farther away from that original high-growth path.

Why growth is slowing

The DBCC said growth is expected to moderate this year due to “heightened domestic and external uncertainties,” including governance-related issues, geopolitical tensions in the Middle East, and other global developments affecting business and consumer confidence.

The DBCC did not elaborate on what the “governance-related issues” were. However, in 2026, the Philippines has been dealing with the fallout from alleged corruption and irregularities in flood-control projects, as well as the impeachment proceedings against Vice President Sara Duterte.

It also warned that elevated inflation could temper household consumption and investments, while slower growth in remittances and visitor arrivals could further dampen the economy.

The DBCC expects inflation to average 6% to 7% in 2026, before easing to 4% to 5% in 2027 and returning to the government’s 2% to 4% target range from 2028 to 2030. Inflation in the first half of 2026 averaged 4.8%. This implies continued price pressure in the second half of the year, even after headline inflation eased to 6.4% in June.

Oil is another highlighted issue, though crude prices have recently softened. The DBCC assumes Dubai crude will average $80 to $100 per barrel in 2026, before easing in later years.

But lower crude prices do not automatically translate to immediate pump price cuts, since local fuel prices also depend on refined product benchmarks, import timing, inventories, and the peso-dollar exchange rate. (READ: Fuel prices rise again with diesel, kerosene hikes on July 7)

The DBCC also flagged the looming El Niño in the second half, which could reduce agricultural output and disrupt economic activity. Recent labor data already show strain in the farm sector, with unemployment rising to 4.8% in May 2026 and agriculture and forestry shedding 905,000 jobs year-on-year. (READ: Unemployment inches up to 4.8% in May 2026 as farm jobs take a hit)

Next steps

Despite the weaker outlook, the government is still preparing a large spending program. The proposed 2027 national budget is P7.2 trillion, equivalent to 21.7% of GDP, while 2026 disbursements are expected to reach P6.47 trillion.

In 2027, the government expects to collect P5.21 trillion in revenues while spending P6.90 trillion, leaving a projected deficit of P1.69 trillion, or 5.1% of GDP. Even so, economic managers aim to gradually narrow the deficit from 5.4% of GDP in 2026 to 3.5% by 2030.

To do that, the government is banking on higher revenue collections and more disciplined spending.

On the revenue side, the DBCC cited it would pursue the “full implementation” of tax policy reforms which include the VAT on Digital Services Act, CREATE More law, Capital Markets Efficiency Promotion Act, and the new Mining Fiscal Regime, alongside better tax administration, digitalization, and enforcement.

On the spending side, the government said it will look for savings by cutting unnecessary recurring expenses, tightening day-to-day operating costs, reviewing the performance incentive system for government workers, and speeding up its Government Optimization Program, which is meant to make the bureaucracy more efficient.

It also plans to push devolution reforms by getting local governments to prepare and approve Devolution Transition Plans, or roadmaps for the services and functions they are expected to take on.

At the same time, the DBCC said it will “rationalize” cash subsidy and financial assistance programs to reduce overlaps and better target beneficiaries. The risks here, however, could be that in trying to save money, the government could make aid harder to access just as many households are still struggling with high prices. – Rappler.com