HSBC cuts Philippines growth forecasts, hikes inflation outlook

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May 15, 2026 | 12:00am

MANILA, Philippines — HSBC Global Investment Research has sharply lowered its growth forecasts for the Philippines and raised its inflation projections for this year and next, as the economy grapples with weaker output, rising joblessness and faster price increases.

In a report, HSBC senior ASEAN economist Aris Dacanay said the bank now expects the Philippine economy to grow by only 3.4 percent in 2026, down from its previous forecast of 4.6 percent.

The bank’s growth projection for 2027 was also cut to 4.6 percent from 5.3 percent previously.

At the same time, HSBC raised its inflation forecast to 6.6 percent for 2026 from four percent, well above the Bangko Sentral ng Pilipinas (BSP)’s two to four percent target range. Inflation is expected to remain elevated at 4.4 percent in 2027, up from the earlier estimate of 3.2 percent.

“With stagflation risks becoming apparent, we adjust our baseline growth and inflation forecasts to be closer to our ‘adverse’ scenario forecasts,” Dacanay said.

The revisions came after an “eventful April,” marked by a sharper-than-expected inflation spike, disappointing economic growth and a more hawkish turn from the BSP.

Dacanay said the Philippines’ adverse scenario, previously framed as a more severe and prolonged fallout from the Middle East crisis, is now “merging with reality” given the country’s vulnerability to energy shocks.

The country’s gross domestic product expanded by 2.8 percent in the first quarter, the slowest pace since 2009 excluding the pandemic. The outturn missed market expectations and reflected weaker public spending and softer private demand.

Meanwhile, inflation accelerated to 7.2 percent in April, exceeding forecasts as the oil shock spread more quickly into other consumer price components.

HSBC also cited a spike in rice prices as an added source of pressure.

“As unemployment in the first quarter of 2026 rose above five percent, the medium-term effects of the growth and inflation shocks are already apparent,” Dacanay said. “All told, stagflation in the Philippines has taken shape.”

The economist warned that conditions could become more difficult in the coming months as the energy shock evolves into a broader food shock.

He said disruptions in the Strait of Hormuz have affected not only oil supply but also fertilizer flows, which could weigh on agricultural yields in the second half of the year. This may coincide with the onset of El Niño, further straining food production and keeping prices elevated.

The bank noted that higher food prices could eventually spill over into core inflation and inflation expectations, complicating the policy response for the BSP.

Despite the weaker growth outlook, Dacanay expects the central bank to tighten monetary policy aggressively to contain inflation risks. He now sees the BSP raising its policy rate by a cumulative 150 basis points to six percent by year-end from 4.50 percent currently.

The bank expects the BSP to move faster in the near term, projecting a 50-basis-point increase by June. This could come either through a single 50-basis-point hike at the scheduled June policy meeting or through two successive quarter-point increases, including one possible off-cycle move.

HSBC’s revised outlook underscores the challenge facing monetary authorities as they seek to anchor inflation expectations without further aggravating an already slowing economy.