MANILA — The Bangko Sentral ng Pilipinas (BSP) expects the country's external sector to remain under pressure through 2027 as geopolitical tensions, high energy prices, and weak global investment continue to weigh on trade and capital flows.
In its latest assessment, the BSP said the Philippines faces a challenging external environment despite expectations of a gradual economic recovery. The central bank said elevated oil prices, tighter global financial conditions, and volatile capital flows are likely to continue to put pressure on the country's balance of payments (BOP).
Global growth outlook remains modest
Global economic growth is expected to remain modest at 2.5 percent to three percent in 2026 and 2027, below pre-pandemic levels, as economies continue to grapple with geopolitical conflicts, trade tensions, and lingering uncertainty. The BSP said persistent tensions in the Middle East have emerged as a major risk, driving up energy prices and increasing transportation, production, and food costs worldwide. Those higher costs could slow consumer spending and business investment while making it more difficult for central banks to balance inflation and economic growth.
"Elevated and volatile energy prices, rather than weak global demand, are likely to be the primary source of pressure on the country's external position," the BSP said.
Downside risks and domestic headwinds
The central bank also warned that risks remain tilted to the downside, citing the possibility of a prolonged Middle East conflict, greater geopolitical fragmentation, renewed trade disputes, and slower productivity gains from emerging technologies. Domestically, the BSP said weaker business confidence and slower investment have compounded external headwinds. The Philippine economy expanded by 2.8 percent in the first quarter of 2026, reflecting slower public infrastructure spending, cautious private investment, and a weaker global environment.
The country's balance of payments deficit widened during the first quarter as higher fuel and commodity prices pushed up import costs while capital inflows weakened. The current account deficit reached 4.8 percent of gross domestic product, driven largely by rising imports of fuel, telecommunications equipment, electrical machinery, and semiconductor inputs. Exports continued to grow, supported by electronics, machinery, transport equipment, and gold shipments, but the increase was not enough to offset the higher import bill.
Support from travel receipts, remittances, BPO
Despite the wider trade gap, the BSP said travel receipts, remittances, and business process outsourcing revenues continued to support the economy. During the first quarter, travel receipts reached $3.2 billion, remittances totaled $8.7 billion, and BPO revenues amounted to $7.3 billion. Financial inflows also weakened during the quarter. Other investment inflows dropped 77 percent because of foreign loan repayments by domestic banks and withdrawals of nonresident deposits. Foreign direct investment also declined, particularly in debt instruments, while portfolio investment remained subdued as investors stayed cautious.
The peso weakened against the U.S. dollar during the quarter as higher import costs and softer capital inflows increased pressure on the currency. Still, the country's external buffers remained strong. Gross international reserves stood at $106.6 billion at the end of March, enough to cover 6.9 months of imports and 4.2 times the country's short-term external debt based on residual maturity.
Outlook for current account, remittances, capital flows
Looking ahead, the BSP expects the current account deficit to widen further this year, although less than previously projected, as structural demand for imported energy and investment goods continues to outpace export growth. The central bank also expects remittance growth to slow because of reduced deployment of overseas Filipino workers, particularly to the Middle East. It said earnings from the information technology and business process management sector could moderate because of artificial intelligence-driven restructuring, while tourism recovery is likely to remain gradual amid high travel costs.
Capital inflows are expected to remain positive but subdued as investors remain selective in an environment of high global interest rates and tight financial conditions. The BSP said foreign direct investment could gradually recover in 2027 as global conditions improve and investment initiatives, including possible Philippine bond index inclusion and sector-specific investment pipelines, gain momentum. However, it said the recovery is likely to be gradual and uneven.
