ASEAN Chairmanship Disappoints Amid Energy Price Worries

The Philippines was expected to shine during its one-year term as chair of the Association of Southeast Asian Nations (ASEAN), but so far it has failed to live up to expectations.

With just two months left in 2026, the country's hopes for a breakout year have been dashed. The Philippines has struggled with high energy prices since the U.S.-Iran war began in February, making it Southeast Asia's worst-hit nation.

According to Ruben Carlo Asuncion, chief economist of the Union Bank of the Philippines, the country has long been plagued by underachievement despite its many advantages. It boasts a young population, a large domestic market, and a strategic location, but these assets have not translated into sustained economic gains.

Asuncion notes that the start of 2026 brought optimism for strong growth, driven by easing inflation, lower interest rates, resilient household spending, and infrastructure investment. However, this momentum was short-lived as the economy faced a series of shocks that slowed down progress and reignited inflation pressures.

The Philippines' failure to capitalize on its advantages has become a recurring theme, with corruption, institutional dysfunction, and energy insecurity weighing it down despite its structural strengths.

The World Bank has forecast a rebound in economic growth for the Philippines to 5.2% in 2027, driven by increased public spending and easing inflation. This is a welcome development, as the country's energy prices have been a major drag on its economy. However, even with this improvement, the Philippines still faces significant challenges that will need to be addressed.

Economists are warning that the country's growth prospects remain uncertain due to ongoing structural issues. According to Peter L. U, dean of economics at the University of Asia and the Pacific in Manila, the university's early forecast for GDP growth was above 5% this year, but has since been revised down to a more modest 3.7%. This downward revision is largely due to high oil prices and cuts in public spending.

The Philippines' recent reclassification as an upper-middle-income economy by the World Bank is seen as a milestone, but not necessarily a destination. According to Asuncion, it's just one step on the path towards becoming a high-income economy. Many countries have reached middle-income status, but few have successfully made the transition to high-income economies.

The contrast between the Philippines and Vietnam is striking. While both countries achieved upper-middle-income status this year, Vietnam's economic growth is expected to be significantly higher in 2026 at 7.8%. Additionally, Vietnam's exports are booming, reaching $375 billion in the first eight months of the year, compared to just $64 billion for the Philippines.

The disparity between the two countries highlights the challenges facing the Philippines. Despite its structural strengths, the country remains stuck in a cycle of underachievement. Asuncion notes that the challenge now is not how to achieve growth, but how to sustain and improve the quality of that growth.

The Philippines' economic growth has been a subject of debate, with some experts pointing out that the country's progress is not as impressive as its age would suggest.

According to economic analysts, one major hurdle to the country's development is the lack of attractive investment opportunities for foreign investors. The high cost of doing business in the Philippines, driven by steep electricity costs and bureaucratic red tape, makes it challenging for companies to operate profitably.

The country's energy prices are expected to remain elevated due to ongoing tensions in the Middle East, which will continue to drive up inflation rates. In fact, oil prices had begun to decline before spiking again following renewed clashes in the region about a month ago.

This has put upward pressure on prices across various sectors, including fuel and fertilizer, as well as the peso's value against the dollar. The peso is currently trading at record lows, exacerbating inflationary pressures.

Economists warn that inflation could rise further due to second-round effects, such as higher transport costs and businesses passing on increased costs to consumers. Rising inflation expectations and wage growth are also contributing factors, with some companies already pushing for pay hikes.

The recent increase in Metro Manila's daily minimum wage from 695 to 755 Philippine pesos is likely to lead to similar increases in other parts of the country, further fueling inflationary pressures.

The Bangko Sentral ng Pilipinas has taken steps to control inflation by increasing interest rates, which will likely reduce consumer spending that drives the country's economy. In October, the central bank raised its benchmark rate by 50 basis points to 5.5%, and further hikes are expected in the coming months. Nomura predicts another increase of 75 basis points to 6.25% by February.

The recent economic challenges facing the Philippines have highlighted the country's vulnerabilities, particularly in areas such as energy dependence and governance. Asuncion notes that economies often face external shocks, but it is how they respond that sets successful nations apart from struggling ones. The current economic woes have exposed weaknesses in the Philippines' institutions and their ability to effectively address challenges.

The ongoing struggles of the Philippine economy are not new; rather, they reflect long-standing issues that have been recurring over time. U points out that external events such as oil price spikes and corruption scandals have been a persistent feature of the country's economic landscape for decades. The current crisis is merely another manifestation of these underlying problems.

The Gulf conflict has led to increased oil prices, which has had a significant impact on the Philippine economy. This is not an isolated event; rather, it represents one of many recurring challenges that the country has faced in the past. Corruption scandals have also been a persistent issue, with some arguing that they are a hallmark of the Philippines' economic struggles.

As the year draws to a close, attention will focus on whether the Philippine government can turn things around and demonstrate its ability to effectively address the country's economic challenges. The upcoming ASEAN Summit in November will be an important opportunity for the government to showcase its commitment to reform and improvement.

The Philippines' ASEAN Chairship has brought about significant economic opportunities, although it will take time for these benefits to materialize and build upon existing initiatives.

These developments include the signing of the ASEAN Digital Economy Framework Agreement, which is expected to be finalized during the upcoming summit. This agreement presents a crucial step in enhancing regional cooperation and integration.

While the Chairship has provided the Philippines with a platform to raise its profile on the investment stage and position itself as a key player in the region, success ultimately depends on effective governance and execution at home.

The country's geostrategic location, abundant natural resources, large population, and investment opportunities remain significant strengths despite the current challenges. This strong foundation can serve as a catalyst for growth and development.

However, experts warn that demographic trends are shifting rapidly, with declining birth rates and slipping educational quality posing risks to sectors reliant on young workers, such as business process outsourcing.

The Philippines' economic struggles are a stark reminder that good governance is essential to achieving growth and development. According to experts, institutions play a critical role in driving a well-functioning economy, and neglecting this aspect can lead to underachievement.

A key takeaway from the past year is that there is no substitute for solid institutions and effective governance. This insight will be central to discussions at the Fortune Southeast Asia 500 Summit, where policymakers, investors, and business leaders will come together to explore strategies for resilient growth in the region.