The Philippines is among the nations most vulnerable to economic fallout from the ongoing conflict in the Middle East as rising oil prices threaten to drive inflation higher and dampen growth, according to a report by Nomura Global Markets Research.
Nomura said in a special report dated March 19 that surging energy prices place the Philippines, Thailand and Indonesia at a higher risk.
Malaysia and Singapore are expected to remain relatively resilient due to stronger starting positions and above-potential growth.
Under a baseline scenario assuming Brent crude averages $86 per barrel, Nomura expects the Philippine economy to grow by 5.3 percent in 2026.
Inflation is projected to settle at 4.4 percent, with the Bangko Sentral ng Pilipinas (BSP) likely keeping policy rates steady at 4.25 percent by the end of the year.
However, the Philippine economy remains significantly exposed to shocks as a large energy importer. Nomura warned that under a negative scenario where Brent crude reaches $100 per barrel, economic growth could slow to 4.4 percent while inflation could accelerate to 5.4 percent. Such a spike could force the central bank to raise key policy rates to as much as 6 percent.
“Headline inflation could surge well above BSP’s 2-4 percent target and household purchasing power could be further eroded, hurting consumption spending. In addition, the conflict would be a threat to worker remittances, as the Middle East is host to more than 2 million overseas Filipinos,” Nomura said.
Analysts also noted that a prolonged conflict could lead to energy supply shortages, which may be exacerbated by export bans in other sources like China because the Philippines does not maintain strategic oil reserves.
Nomura suggested that domestic energy conservation policies implemented in response to shortages would likely intensify the economic slowdown.
The researchers noted that proposed measures, such as a temporary reduction in the excise tax on fuel or an exemption from VAT, would only mitigate the impact on fuel prices marginally.
On the fiscal side, the report saw limited scope for support measures as deficits remain high and government debt ratios hover around 60 percent.
In a more optimistic scenario where Brent crude averages $75 per barrel, Nomura sees inflation at 3.2 percent. In this case, the BSP would likely maintain policy rates at 4.25 percent, allowing the government to focus on infrastructure spending rather than emergency measures.
“As a result, we would expect growth to be similar to our baseline scenario, with the policy rate unchanged and the government still able to implement catch-up spending plans on infrastructure projects, instead of being forced to prioritize emergency measures to avert an energy crunch and surging inflation,” Nomura said.
