Philippine growth slumps to 2.1%, the slowest since the pandemic, yet economists expect the BSP to keep raising rates: what it means for the peso and your loans

How fast is the Philippine economy growing? Barely. Gross domestic product expanded just 2.1 percent in the third quarter of 2026 from a year earlier, down from 2.4 percent in the second quarter and 4 percent a year before, the Philippine Statistics Authority reported on Monday 9 November. It was the slowest pace since the pandemic and well below the 3.1 percent economists had expected, The Philippine Star reported.

Normally a slowdown that sharp would bring rate cuts. Instead, economists at HSBC, Bank of America and the Bank of the Philippine Islands expect the Bangko Sentral ng Pilipinas to keep raising interest rates, because inflation is still well above target and the peso remains fragile. For Filipino households and borrowers, that means slow growth and expensive money at the same time.

What dragged growth down

The weakness was concentrated at home. Household consumption, the engine of the Philippine economy, grew only 2.4 percent, its weakest expansion outside the pandemic since 2010, according to HSBC. In nominal terms consumer spending rose 8.5 percent, which shows that most of the increase reflected higher prices rather than more goods and services bought. Filipinos are paying more and getting less.

Investment contracted 0.2 percent, an improvement on the second quarter's 8.8 percent fall but still negative, and agriculture shrank 4.8 percent. HSBC economist Aris Dacanay pointed to a confidence shock from investigations into flood control projects, which curtailed infrastructure spending, describing it as "large and long lasting" even as construction demand began to improve.

There were bright spots. Exports grew 8.6 percent and government consumption 6.8 percent. But they were not enough to offset weak domestic demand, and the overall picture is of an economy where inflation has eaten into real incomes and public works have stalled.

Why the BSP is still expected to hike

The central bank's problem is inflation. Bank of America expects inflation to average 6 percent in 2026 and 5.2 percent in 2027, above the BSP's 2 to 4 percent target until late 2027. Cutting rates while prices rise that fast, and while the peso is near record lows, would risk fuelling both.

HSBC's Dacanay said the weak GDP figure reduced the chance of another aggressive 50 basis point move in December, but did not remove the need to tighten. He expects a 25 basis point increase to 5.75 percent, which he believes would end the cycle. Bank of America expects 25 basis points in December and another 25 in February 2027, taking the benchmark rate to 6 percent.

BPI lead economist Emilio Neri Jr. said further increases remain likely, warning that pausing too early could let inflation become entrenched and make the eventual recovery harder. We followed the central bank's earlier moves in our report on the peso's record low after a 50 basis point BSP hike.

The Philippines is caught in the worst of both worlds: growth too weak to ignore and inflation too high to cut. The BSP is choosing to fight prices first.

The peso still follows the oil price

The peso hit a record low of 64.17 to the dollar on 27 October before recovering to around 62. Bank of America and Citi say it could stabilise as oil prices ease and remittances rise ahead of Christmas, but neither sees a lasting recovery yet, according to The Philippine Star.

Bank of America strategist Abhay Gupta said the medium term outlook stays weak unless Brent crude falls to about 70 dollars a barrel and the country's basic balance deficit narrows to 2 to 2.5 percent of GDP. The current account deficit widened to 6.3 percent of GDP in the first half from 3.5 percent in 2025, energy imports rose to 4.5 percent of GDP, and weaker outsourcing revenue and slower remittances added pressure.

Citi's chief Asia economist Johanna Chua said "peso is very sensitive to oil" and that it could underperform other Asian currencies, which benefit from AI related investment and current account surpluses. Citi expects the peso at around 64 per dollar by March 2027.

Why the Philippines stands out in the region

The contrast with neighbours is stark. Malaysia's central bank held its policy rate at 2.75 percent at its last meeting of 2026 and lifted its growth view to above 5 percent, as we reported in our analysis of Bank Negara's November decision. Vietnam is on course to overtake Indonesia in income per person, and South Korea and Taiwan are riding a chip export boom. The Philippines, by comparison, is fighting higher inflation with higher rates while its growth rate falls.

Part of the difference is structure. Economies that export chips and electronics are benefiting from global AI spending, which brings in dollars and supports their currencies. The Philippines imports most of its energy, relies heavily on remittances and outsourcing income, and has a large current account deficit. That makes it more exposed to oil shocks and a strong dollar, and less able to benefit from the AI boom, which is why Citi expects the peso to underperform other Asian currencies.

It also explains why the BSP has less room than its neighbours. A central bank defending a weak currency and high inflation cannot cut rates simply because growth slows, and investors will watch December's decision for any sign that the bank is willing to tolerate a weaker peso to support the economy.

What it means for borrowers, investors and the government

For ordinary Filipinos, the combination is painful. Higher rates feed into credit card, car and housing loan costs, while slow growth limits wage gains and job creation. The practical implications include:

• loan rates are unlikely to fall before 2027
• prices of imported goods and fuel stay sensitive to the peso and oil
• remittance families gain when the peso is weak, but lose when prices rise faster
• savers can earn better returns on deposits and government bonds

For investors, there is one positive catalyst. Bank of America said the Philippines' inclusion in JPMorgan's Government Bond Index Emerging Markets could bring 4 to 5 billion dollars of passive inflows over ten months from January 2027, although a weak currency, high rates and thin liquidity could reduce or delay them. Growth forecasts remain subdued, with Bank of America expecting 2.6 percent in the fourth quarter and 3.5 percent in 2027, and HSBC 3.2 percent this year and 4.8 percent next.

For the government, the lesson is that stalled infrastructure spending has a real cost. HSBC urged faster rollout of foreign funded projects and lower barriers to food imports to ease prices and revive demand. Our analysis of the 2027 budget assumptions shows how much depends on oil and the peso behaving.

The Philippines has slipped into a low growth, high inflation squeeze, and the central bank has signalled it will keep fighting prices rather than rescue growth. Until oil falls and the external deficit narrows, the peso will stay vulnerable, and Filipino households will keep paying more for less.