By Amanda Lee and Fabiana Negrin Ochoa

War in the Middle East is adding pressure to the Philippines economy, which was already losing momentum after a domestic corruption scandal, Moody's Ratings analysts say in a report.

Higher energy and import costs are expected to squeeze household incomes, dampen consumption and weigh on industrial activity, pushing inflation higher, they said.

Moody's raised its inflation forecasts and lowered its growth outlook. It now expects inflation to average 3.7% this year and 3.5% in 2027, up from 3.0% and 3.2%, respectively.

It cut real GDP growth forecasts for 2026 to 4.9% from 5.5%, and for 2027 to 5.3% from 5.6%.

Higher energy prices could also limit scope the central bank's scope to lower interest rates. Slower remittance growth may further weigh on consumption. Personal remittances from overseas Filipinos were equivalent to 8.1% of GDP in 2025.

Last year, inflation averaged 1.7% and growth slowed to a five-year low of 4.4%, partly due to a domestic corruption scandal involving alleged misuse of public funds for flood-control projects.

With inflation now expected to stay above the central bank's target range, Moody's sees a rising risk of tighter policy.

So far, only a few central banks in Asia have tightened policy settings as the war fuels price growth and fears of a "stagflationary" shock.

Moody's has a stable outlook on the Philippines, reflecting a balance of risks at the Baa2 rating level.

Earlier this month, S&P Global downgraded the Philippines' outlook to stable from positive, citing risks to its external and fiscal position from to the Middle East conflict.

Write to Amanda Lee at amanda.lee@wsj.com and Fabiana Negrin Ochoa at fabiana.negrinochoa@wsj.com

(END) Dow Jones Newswires

April 14, 2026 00:57 ET (04:57 GMT)

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