The World Bank has significantly lowered its economic growth forecast for the Philippines in 2026, citing the prolonged US-Iran conflict as a major threat to the nation's recovery. The revised projection of 3.7% marks a sharp decline from the previous estimate of 5.3% and falls well below the government's target range of 5% to 6%.
"The Philippines is exposed to the conflict not only through energy and fertilizer imports but also through remittances," said Ergys Islamaj, a senior economist for East Asia and the Pacific at the World Bank. "A longer conflict will hurt the economy further."
This downgrade represents the weakest projected expansion in 17 years, excluding the pandemic-induced contraction in 2020. The bank's analysis suggests that the ongoing Middle East war has created multiple challenges for the Philippine economy, including rising inflation that reached 4.1% in March—the highest level in nearly two years.
The conflict has already prompted the Philippines to declare a national energy emergency, becoming the first country to take such action in response to the historic oil shock. Additionally, the purchasing power of the peso has weakened to a record low of 0.75 centavos, complicating the nation's goal of achieving upper-middle-income status this year.
While the World Bank anticipates a potential rebound to 5.6% growth in 2026, this projection still falls short of the economy's estimated potential of approximately 6%. The bank warns that sustained increases in fuel prices could further erode household balance sheets across the region, potentially disrupting the Philippines' recovery from recent economic challenges.