Philippine economy likely to expand by 5.3% in 2026

The Philippine economy is likely to grow by 5.3% this year, driven by robust domestic demand, although private investment risks persist amid the graft scandal, the ASEAN+3 Macroeconomic Research Office (AMRO) said.

In its latest Regional Economic Outlook quarterly update, AMRO sees Philippine gross domestic product (GDP) expanding by 5.3% in 2026, unchanged from its annual consultation report released in November.

This is still within the government’s revised 5-6% GDP growth target for 2026.

“The picture for the Philippine economy is that it has been quite steady, but there are some headwinds against (this outlook) on the investment side,” AMRO Chief Economist Dong He said in a virtual news briefing on Wednesday.

“Private investment of course, needs to be supported by investor confidence, and the public investment had been affected by some of the, for example, flood control controversy,” Mr. He said.

If realized, the Philippines is expected to be the second fastest-growing economy in Southeast Asia this year, after Vietnam’s 7.6%.

The country’s growth will likely outpace Cambodia (5.1%), Indonesia (5%), Laos (4.6%), Malaysia (4.4%), Singapore (3%), Myanmar (2.5%), Thailand (1.7%), and Brunei (1.6%).

The Philippines’ GDP growth would also be above the region’s average growth of 4.6% for 2026.

For 2025, AMRO said the Philippine economy likely grew by 5.2%, falling short of the government’s 5.5-6.5% target.

Mr. He also noted that the “fairly weak” third-quarter growth in 2025 prompted a downgrade in forecasts from the October update.

A flood control corruption scandal has weighed on growth, investor confidence and consumption.

In the third quarter, GDP grew by 4%, the weakest growth in over four years, bringing the nine-month average to 5%.

Fourth-quarter and full-year 2025 GDP data will be released on Jan. 29.

Mr. He said private consumption, which accounts for over 70% of the economy, will continue to remain firm, but the corruption scandal hit the investment side, he added.

Meanwhile, AMRO kept its headline inflation forecast for the Philippines at 3.2% this year, matching the Bangko Sentral ng Pilipinas’ (BSP) full-year projection.

Inflation settled at 1.7% in 2025, the slowest pace in nine years or since 2016.

MAIN RISKS

Meanwhile, AMRO said climate-related risks and artificial intelligence (AI), which put pressure on the country’s service exports sector, are the two main risks for the Philippine economy.

Mr. He also said that while the economy has expanded “steadily,” growth remains below its pre-pandemic trajectory.

“What’s important is really to strengthen governance, strengthen investor confidence, and prioritize investments or prioritize public spending so the economy will become more resilient (against the main risks),” he said.

Last week, the government unveiled “big bold reforms” before the private sector to counter the slide in investor confidence amid a corruption scandal.

Mr. He said these risks highlight the need to upgrade human capacity and human capital to suit the AI age, as well as strengthen infrastructure to make it resilient amid natural disasters.

“In order to maintain resilience and even aim higher to go back to earlier trajectory of growth, we think that the public policies should really focus on strengthening resilience, particularly in light of the two main risks facing the Philippines in the longer term,” he added.

AMRO added that in the near term, authorities have room to ease monetary policy and deploy fiscal support to help the economy.

“I think in terms of policies, of course, in the short term if there are shocks that hit the economy, monetary policy and fiscal policy would be the first policy instruments that the government can use,” he said.

The BSP has reduced its benchmark rate by a total of 200 basis points since August 2024, bringing the policy rate to a more than three-year low of 4.5%.

REGIONAL GROWTH TO MODERATE

Meanwhile, the ASEAN+3 region is projected to grow by 4% this year, moderating from the regional growth forecast of 4.3% in 2025 amid softer external demand.

ASEAN+3 includes the 10 Association of Southeast Asian Nations (ASEAN) member states plus China, Hong Kong, Japan and South Korea.

ASEAN is forecast to expand by 4.6% this year, slightly slower than 4.8% estimate in 2025.

“While domestic demand is projected to remain firm and continue supporting growth, higher US tariffs and persistent policy uncertainty are expected to weigh on external demand, leading to more moderate growth in 2026,” AMRO said.

The US began imposing a 19% reciprocal tariff on many goods from the Philippines, Cambodia, Malaysia, Thailand, and Indonesia in August 2025.

The think tank noted that overall risks to the regional outlook have become “more balanced,” though downside risks persist and uncertainty continues to rise.

AMRO also flagged five downside risks that could weigh on the region’s baseline forecast for 2025 to 2026, including heightened protectionist measures and a potential slowdown in technology demand.

It also warned that further escalation of US trade measures may dampen regional activity, amid concerns that tariffs will be imposed on sectors currently exempted, such as semiconductors.

Other factors that could undermine regional growth in the near term include potential slowdowns in major economies, surging global commodity prices, and increased financial market volatility.

AMRO said long-term risks include geoeconomic confrontation and policy uncertainty from geopolitical tensions, failure of climate change mitigation and adaptation, natural disasters, and extreme weather events.

It added that cyber insecurity, frontier technology risks, weak preparedness for infectious disease outbreaks, and inadequate planning for an aging population could further weigh on the region in the long run.

Despite these risks, the AMRO noted potential upside, such as strong global semiconductor demand and sustained foreign direct investment (FDI) commitments.

“Strong technology demand and robust FDI inflows into emerging sectors, including advanced electronics, electric vehicles, and digital services, have helped cushion growth despite ongoing tariff headwinds,” Mr. He said.

Source: Business World

AMRO cuts Philippine growth outlook

Philippine economic growth may fall short of the government’s target this year amid a slower-than-expected rise in consumption and investment, the ASEAN+3 Macroeconomic Research Office (AMRO) said.

In its latest Annual Consultation Report, AMRO cut its gross domestic product (GDP) growth projection for the Philippines to 5.8% this year from its 6.1% estimate in October.

This would fall below the government’s revised 6-6.5% growth target for 2024.

AMRO said household spending and private investment were weaker than expected this year due to elevated inflation and high interest rates.

“Household consumption, underpinned by a strong labor market and robust remittances, continued to expand, but at a slower pace due to the lagged impact of high inflation.”

“Private investment is gradually rebounding but has yet to reach pre-pandemic levels, partly due to weak investment sentiment amid high interest rates,” it added.

Latest data from the Philippine Statistics Authority (PSA) showed that Philippine GDP growth averaged 5.8% in the first nine months of the year.

For 2025, AMRO retained its growth forecast of 6.3% for 2025.

“The pickup in growth is driven by higher government spending as well as an upturn in external demand and strengthening domestic demand,” it said.

The think tank also expects domestic demand to improve moving forward, which would support growth.

“Private consumption is anticipated to grow faster in the rest of the year, supported by strong labor market conditions, lower inflation and robust overseas remittances.”

“With the start of the monetary policy easing cycle, private investment sentiments are expected to improve,” it added.

However, AMRO said the growth outlook faces “heightened geopolitical risks” that may increase the likelihood of supply disruptions and further global economic fragmentation.

The Philippine economy’s growth momentum could also be “derailed by a sharp slowdown in major trading partners in the near term,” it added.

“Over the long term, the country’s potential growth could be constrained by insufficient infrastructure investment, vulnerabilities to climate change, and prolonged scarring effects caused by the coronavirus disease 2019 (COVID-19) pandemic.”

Consumption growth may still be hampered by elevated inflation, it added.

“Philippine growth prospects, particularly private consumption, are clouded by the risk of high food inflation… Higher costs of basic needs would further reduce households’ ability to afford discretionary items and hence constrain household consumption.”

However, AMRO projects headline inflation to average 3.2% this year and the next.

“Inflation is expected to stay broadly within the target range in the second half of 2024 through 2025, benefiting from the continued easing of global commodity prices and government measures,” it said.

The Bangko Sentral ng Pilipinas (BSP) expects inflation to average 3.1% this year and 3.2% in 2025.

“While upside risks such as wage increases and local food supply shocks remain, the decline in headline inflation is expected to continue in the second half of 2024 due to lower commodity prices of fuel and food, and tariff cuts on imported rice,” AMRO said.

“Meanwhile, inflationary pressure will likely remain moderate due to a positive output gap and second-round effects, following increases in minimum wages and persistently high inflation expectations.”

With inflation expected to remain within target, AMRO said that there is room for the BSP to continue its rate-cutting cycle.

“As inflation will continue to ease within the target band, there is room to adopt a less restrictive monetary policy stance if current growth trends continue,” it said.

“However, if supply-side risks emerge, a whole-of-government approach should be taken to address inflationary pressures.”

Since August, the central bank has lowered borrowing costs by 50 basis points (bps), bringing the key rate to 6%.

The Monetary Board is set to have its last policy review for the year on Dec. 19.

“As year-to-date inflation has returned to the upper half of the target range, the BSP has room to gradually adjust the policy rate to a moderately restrictive stance,” AMRO said.

“This will lend some support to private investment and allow the BSP to rebuild space for renewed policy rate hikes if inflationary risks were to reemerge.”

Meanwhile, AMRO said that the Philippine government’s fiscal consolidation efforts can still be enhanced.

“The current fiscal-monetary policy mix is appropriate and can be adjusted further to support economic growth while rebuilding policy buffers.”

AMRO expects the fiscal stance from this year to 2025 to be “neutral.”

It projects the fiscal deficit settling at 5.7% of GDP this year and 5.6% of GDP in 2025, driven by “robust revenue collection despite higher expenditure.”

“Moving forward, the fiscal balance is expected to gradually decline to 4.2% of GDP by 2028,” it added.

The latest data from the Treasury showed the budget deficit narrowed to P963.9 billion in the January-October period.

The government has set a deficit ceiling of P1.52 trillion this year, equivalent to 5.7% of economic output. It expects to lower the budget gap to 3.7% of GDP by 2028.

RISING DEBT

Meanwhile, AMRO expects the National Government’s (NG) outstanding debt to rise slightly before easing further.

“Public debt is projected to increase slightly from 60.1% of GDP in 2023 to 60.7% in 2024, due to the government’s sustained funding needs and higher debt servicing costs.”

“However, it is expected to gradually decrease to 57.6% of GDP in 2028, on account of improved fiscal positions and robust economic growth.”

The NG’s debt-to-GDP ratio stood at 61.3% at the end of September, still above the 60% threshold deemed by multilateral lenders as manageable for developing economies.

The government seeks to bring the ratio down to 60.6% by the end of 2024, and below 60% by 2028.

“While the need for strategic adjustments in medium-term fiscal policy to support the economy is recognized, fiscal consolidation should be accelerated when conditions allow,” AMRO said.

“The government is likely to continue its medium-term fiscal consolidation plan at a slower pace to better support economic growth. However, it would be prudent to quicken the pace of fiscal consolidation if conditions allow, as restoring fiscal space remains critical to build greater resilience to external shocks amid elevated uncertainty.”

AMRO recommended efforts to expedite revenue mobilization and increase efficiency, as well as long-term fiscal reforms for fiscal sustainability.

“Overall financial stability remains sound; at the same time, a more active use of macroprudential toolkits could be considered to mitigate the financial stability risks,” it said.

“Some signs of vulnerabilities have emerged in certain areas, such as the household and property sectors, which warrant close monitoring. Meanwhile, the authorities should strengthen the institutional framework to safeguard financial stability and deepen the bond and repo markets.”

Source: Business World

Addressing High Inflation in the Philippines – the Role of Policy Mix

The Philippine economy has witnessed a robust performance over the past few years. However, such performance was accompanied by high inflation which became the main issue of concern. Despite some moderation from its peak of 8.7 percent in January 2023, headline inflation was 6.0 percent for the full year of 2023 while core inflation recorded a notable increase from 3.9 percent in 2022 to 6.6 percent in 2023.

What is driving inflation in the Philippines and how can the authorities utilize the “all-of-government” approach to combat inflation?

Key drivers of inflation in the Philippines

In general, inflationary pressures arise from a combination of demand-side (such as strong economic activities) and supply-side factors (such as increases in wages and commodity prices). A 2023 study conducted by the ASEAN+3 Macroeconomic Research Office on the drivers of Philippine consumer price index (CPI) inflation found that Philippine inflation was mainly driven by supply factors in 2022. However, thanks to the positive output gap, demand factors have become the main driver in 2023 (Table 1).

The rise in headline inflation in 2022 was largely driven by external supply factors such as surges in international commodity prices due to global supply chain disruptions and depreciation of the local currency. However, the persistence of high inflation in 2023 was mainly due to domestic demand factors, including a positive output gap thanks to robust growth performance and second-round effects induced by minimum wage hikes and expectations of persistently high inflation. At the same time, local supply shocks, such as typhoons, animal diseases, and other natural disasters, also contributed to the high inflation (Figure 1).

Meanwhile, both demand and supply-side factors continued to influence prices in the Philippines over the past two years, leading to high and persistent core inflation which excludes selected volatile food and energy components.

“All-of-government” policy mix

Having an in-depth understanding of the country’s inflation dynamics and the underlying drivers is vital to the setting of policies for the Philippine economy. In particular, the empirical results support the Philippine authorities’ “all-of-government” approach, which comprises both monetary and non-monetary measures, as it was timely and appropriate to curb with persistently high inflation, which were driven by buoyant demand and supply shocks, in 2022-2023. Aided by a moderation in international commodity prices, monthly headline inflation has declined from its peak of 8.7 percent (year on year) in January 2023 to 2.8 percent in January 2024.

Our findings showed that demand-side factors dominated in driving inflation in mid 2022 through 2023, which implies that the use of demand management policy – tightening stance of monetary and fiscal policy – was warranted. Between May 2022 and end-2023, the Bangko Sentral ng Pilipinas (BSP) tightened monetary policy aggressively by raising the policy rate ten times, from a historic low of 2.0 percent to 6.5 percent, which was deemed timely and appropriate.

As growth is projected to remain strong in 2024, the BSP should maintain a hawkish bias and stand ready to tighten the policy rate further if inflation becomes more persistent than expected. The ongoing fiscal consolidation also complements the tightening monetary policy stance in curbing high inflation.

Meanwhile, the contribution from supply-side factors to the high inflation rates was far from negligible. Most notably, prices of key food items, such as rice, onions, sugar, eggs, and pork, have surged to unprecedented levels due to a shortage of domestic supply. The surge certainly would call for the use of appropriate supply-side (or non-monetary) measures to help ease supply constraints.

In the short term, import restrictions should be relaxed by lowering import tariffs, speeding up the administrative processes required for importation, and  allowing for more imports of food through  market. These relaxations should remain in place subject to developments in domestic supply and prices.

In the medium to long term, the country should promote a stronger agricultural sector and a more resilient domestic food supply chain to reduce fluctuations in food prices and enhance food security. Specifically, it would be beneficial to introduce institutional reforms, such as land consolidation, enhancement of farmers’ access to financing, introduction of modern farming and innovation through the use of technology, and improvement in supply chain.

Amid the battle against high inflation, the government can help ease the pain of those most affected through targeted subsidies to the vulnerable groups. Compared to broad-based subsidies, the existing subsidies targeted for the lower-income groups are more appropriate as such targeted subsidies can help mitigate the adverse impact of inflation on the vulnerable groups without undermining fiscal sustainability.

Thanks to the use of policy mix, the Philippine authorities have taken a balanced approach in their attempts to tackle high inflation in recent years. However, the battle is not over yet as there are likely to be more shocks ahead. Supply side factors will continue to play a part as important determinants of Philippines’ inflation dynamics going forward. The authorities should remain vigilant and continue to address challenges which may arise from heightened uncertainty in the global economy, geopolitical conflicts and climate change.

Source: AMRO