Philippines likely to miss 2025 growth goal

The Philippine Economy is unlikely to get the boost it needs in the fourth quarter to reach the low end of its full-year growth target, as public spending and investments are expected to remain subdued amid a widening corruption scandal, analysts said.

Analysts also said it is time for economic managers to revise their 5.5% to 6.5% gross domestic product (GDP) growth goal for 2025.

Jonathan L. Ravelas, a senior adviser at Reyes Tacandong & Co., said Philippine GDP is unlikely to grow by 6.9% in the fourth quarter to register at least 5.5% growth for the full year.

“The government’s economic team flagged slower public spending as a key drag on momentum. In response, I’ve adjusted my GDP targets for 2025 to 5.3% (from 5.7%), and for 2026 to 5.6% (from 5.8%),” he said.

Philippine GDP expanded by 4% in the third quarter, sharply slowing from the 5.5% in the second quarter and 5.2% a year ago, as public construction was hit by a corruption scandal involving infrastructure projects that has dampened consumer and investor sentiment.

This was the slowest pace since the 3.8% contraction at the height of the pandemic in the first quarter of 2021. Excluding the pandemic, this growth was the weakest since the third quarter of 2011.

This brought the nine-month average to 5%, slower than 5.9% in the same period last year.

Reinielle Matt M. Erece of Oikonomia Advisory and Research, Inc. said the economy is not likely to expand by 7% in the fourth quarter.

“We may expect it to grow by at most 5.2% given the momentum of the economy. Persistent pessimism, add to that the disappointing third-quarter GDP growth, would drag investments on a downward trend,” he said in a Viber message over the weekend.

Mr. Erece said that strong corporate earnings won’t be enough to counter the drag from transparency issues and economic disruptions from recent calamities.

Economy Secretary Arsenio M. Balisacan on Friday said hitting even the low end of the government’s 5.5% to 6.5% growth target will be “very challenging,” especially with more storms expected this quarter.

ING Bank Regional Head of Research, Asia Pacific Deepali Bhargava warned that sluggish government spending could become a longer-term drag on the economy, dampening both fiscal outlays, business and private sector sentiment.

Government spending rose by 5.8% in the third quarter, slowing from the 8.7% pace in the previous quarter, but faster than the 5% growth in the same period in 2024.

“While agriculture and private consumption are likely to rebound in the fourth quarter, investment and public spending may remain muted, keeping the overall GDP growth numbers subdued,” Ms. Bhargava said in a report on Nov. 7.

Citing the Business Outlook Survey, Ms. Bhargava noted the 12-month all-industry confidence index fell to its lowest since 2022 in the third quarter, with respondents most pessimistic about construction and real estate.

“Externally, export strength in Q3 provided some support, but this resilience may fade in 2026 as the full impact of higher tariffs takes hold, eroding competitiveness,” she said.

ING now sees 2025 GDP growth at 4.7%, down from its earlier 5.2% forecast.

‘UGLY ALL AROUND’

Pantheon Macroeconomics Chief Emerging Asia Economist Miguel Chanco described the Philippines’ third-quarter GDP print as “ugly all around” and warned that the worst has yet to come.

“Looking ahead, things are likely to get worse before they get any better, as the anti-corruption drive in public infrastructure projects that has stymied activity only really started in the final month of the third quarter,” he said in a report on Nov. 7.

Mr. Chanco flagged deepening cracks in domestic demand, with sales data showing no signs of “light at the end of the tunnel” but more likely than not to bleed into the fourth quarter.

For Mr. Chanco, the only real bright spot was the export of services, which rebounded by 2.4% quarter on quarter.

“We’ve been downbeat on the economy’s growth prospects for some time, but it’s clear today that we’ll still have to downgrade our already soft 5.3% and 5.4% projections for this year and next, respectively,” he said.

Union Bank of the Philippines Chief Economist Ruben Carlo O. Asuncion said in an e-mail that 4% growth in the third quarter reflected impact of tighter financial conditions, slower government spending, and lingering external headwinds.

“While household consumption remained resilient, the drag from weak capital formation and subdued exports underscores the need for stronger public investment execution and targeted support for trade-sensitive sectors,” he said in a Viber message.

In the third quarter, household final consumption expenditure, which accounts for over 70% of the economy, grew by a slower 4.1% from 5.3% in the second quarter and 5.2% a year ago.

Gross capital formation, the investment component of the economy, contracted by 2.8% versus the 12.8% growth a year ago and the 1.2% expansion in the second quarter.

Capital Economics noted that the Philippines’ third-quarter performance contrasted sharply with most of the region — including Taiwan, South Korea, and Vietnam, where growth accelerated during the period.

“Heightened uncertainty and fears of exposure may deter firms from committing to new investment projects, while delays in public procurement will weigh further on demand,” it said, saying that weakness in activity is likely to persist through 2026.

Despite the absence of widespread political unrest, Ms. Bhargava said the expansion of the anti-corruption campaign risks prolonging the economic slowdown.

“It’s sad that neighboring ASEAN (Association of Southeast Asian Nations) countries such as Vietnam are growing at such a robust pace compared to us. We lack competitive industrial policy, inclusive opportunities, and most importantly, good governance,” Mr. Erece said.

Finance Secretary Ralph G. Recto earlier said the economic fallout from the corruption scandal is “temporary,” adding that he projects an economic rebound in 2026.

Mr. Ravelas said that for investments to rebound in the fourth quarter, the government has to “fix the corruption issue and restore public trust.”

“For now, monitor fiscal policy execution closely. If spending remains subdued, private sector resilience and investment will be critical to sustaining growth,” Mr. Ravelas said.

MORE ROOM FOR BSP CUT

Meanwhile, weak economic prospects and the easing inflation outlook would give the Bangko Sentral ng Pilipinas (BSP) ample room to continue its easing cycle, analysts said.

Capital Economics said in a report that the recent GDP result “confirmed” the chances of the BSP cutting rates at its Dec. 11 meeting.

“We continue to expect two more 25-basis-point (bp) rate cuts this cycle (one before yearend and another in early 2026) but the risks are skewed towards more easing than we currently anticipate,” it added.

ING’s Ms. Bhargava said the slower third-quarter print strengthens their call for a 25-bp rate cut in December.

Since it began its easing cycle in August 2024, the Monetary Board has cut its key policy rate by 175 bps to a three-year low of 4.75%. 

BSP Governor Eli M. Remolona, Jr. has signaled further easing until next year to help support domestic demand as the corruption mess dampened investor sentiment and economic prospects.

“With inflation easing and the BSP likely to pivot to a more accommodative stance in early 2026, apart from the 25-bp cut in December,” Mr. Asuncion said.

In the 10-month period, inflation averaged 1.7%, matching the BSP full-year forecast and still within its 2-4% target.

“Nevertheless, we expect growth to regain momentum, though risks from global demand and fiscal constraints remain,” Mr. Asuncion said.

Source: Business World

Growth outlook slashed

Economy now seen expanding by just 5.2% next year

Philippine economic growth will continue to lose momentum next year as both household spending and investments cool, a Fitch Group unit said.

“Headwinds to growth are mounting,” BMI Country Risk & Industry Research said as it cut the 2026 growth forecast for the country to 5.2 percent from 6.2 percent.

That for 2025 was kept at 5.4 percent — lower than the 2024 result of 5.7 percent — and growth is also expected to slow in the last six months of the year.

Both forecasts fall below the government’s 5.5- to 6.5-percent target for this year and 6.0-7.5 percent for 2026. If realized, growth will have fallen below target for four straight years.

“Growth in H1 2025 was driven by front-loading activity and robust domestic consumption. However, we expect growth to slow in H2 2025,” BMI said in an Oct. 22 commentary.

“Investment is likely to stay subdued in H2 given the uncertain global environment and weak infrastructure spending.”

An ongoing corruption scandal was said to have worsened investor sentiment, with BMI noting that the Philippine Stock Exchange index had fallen to a near six-month low last Sept. 30.

Manufacturing activity has also shown signs of strain, with the purchasing managers’ index contracting for the first time in six months in September.

Exports, meanwhile, sharply slowed in August from a month earlier.

‘Outsized impact’

As for 2026, BMI said that remittance growth was likely to slow due to tighter United States immigration policy and a 1-percent tax.

“A slowdown in remittances will weigh on domestic consumption, which will have an outsized impact on growth given the domestically driven economy,” it said.

The trade balance also expected to worsen given a US-Philippines deal that imposed a 19-percent duty on Philippine exports and none on American goods.

Erratic US trade policies and global uncertainty, BMI added, are seen constraining foreign direct investment flows into the country.

The Fitch unit cautioned that the risks to its forecast were tilted to the downside.

“Should the ongoing probe uncover corruption across other infrastructure projects beyond flood control, it could lead to even tighter scrutiny on government spending and reduce spending substantially below fiscally programmed levels,” it said.

The economy has underperformed so far for the year, averaging just below the 5.5- to 6.5-percent target as of end-June following 5.4-percent and 5.5-percent results in the first two quarters.

Preliminary third-quarter growth data will be released on Nov. 7, and economic managers have warned of a slowdown due to government spending having slowed due to the corruption mess.

BMI expects growth to rebound to 6.2 percent in 2027 and 6.3 percent in 2028.

Deficit to narrow

The Fitch unit, in a separate Oct. 22 commentary, also said that the country was likely to post a narrower fiscal deficit with spending having fallen below target.

BMI said the shortfall was likely to hit 5.5 percent of gross domestic product this year, down from 5.7 percent in 2024, and ease further to 5.4 percent next year.

While revenue collections have exceeded average monthly targets since the start of the year up to August, spending over the same period was behind programmed levels due to an election ban and weak infrastructure disbursements.

The spending shortfall will likely narrow but still undershoot the 2025 budget, BMI said, noting that Budget Secretary Amenah Pangandaman has warned of a slowdown due to the corruption mess.

Government infrastructure spending slowed by 5.6 percent to P798.4 billion as of end-August from P845.3 billion recorded last year, Budget department data showed.

Budget officials said the infrastructure project implementation will likely accelerate in the fourth quarter with the typhoon season over, and ”payment of progress billings may also start to normalize in the latter part of the year as internal controls have been put in place” by the Public Works department.

Fiscal consolidation will remain slow next year, BMI said, with tax collections unlikely to keep up with next year’s proposed P6.79-trillion government budget.

Tariff collections are also expected to fall due to the trade deal with the US.

‘Fiscally unfeasible’

Next year’s fiscal deficit forecast, BMI said, is supported by a “one-off privatization” — equivalent to 0.3 percent of gross domestic product — planned by the government.

“We think that this is fiscally unfeasible over the long run,” it said.

BMI noted that the Philippines’ public finances remain fragile with the debt-to-GDP (gross domestic product) ratio hovering around 60 percent, significantly above the pre-pandemic level of 40 percent.

“Elevated borrowing costs and a narrow revenue base further limit Manila’s ability to deliver large-scale fiscal support without compromising debt sustainability,” it added.

Debt-to-GDP ratio as of end-June, meanwhile, had climbed to 63.1 percent from 62 percent in the previous quarter and 60.9 percent a year earlier. It also exceeded the 60-percent threshold that multilateral lenders consider manageable for developing economies.

Source: Manila Times

Slowing population growth opens window for faster economic growth

As the Philippines’ population growth rate has drastically slowed down, the country now has a window of opportunity to experience faster economic growth, as the working population makes up a larger share of the total population, according to an expert.

“We have an opportunity to experience an economic growth that we have not seen before or could not have imagined,” said Jose “Oying” G. Rimon II, founding director of the William H. Gates Sr. Institute for Population and Reproductive Health at Johns Hopkins University’s Bloomberg School of Public Health. He said at the sidelines of the National Population, Health and Environment Conference.

“This will happen if we do the right policies and the right investment. The right investment must be in education and in health,” Mr. Rimon added.

According to the Philippine Statistics Authority (PSA), the country’s population growth rate (PGR) slowed to 0.8% annually between 2020 and 2024, from 1.63% in the 2015–2020 period.

Mr. Rimon said the lower population growth rate could lead to a decline in the young dependent population (aged 14 and below) and an increase in the working-age population, which could further support economic growth, a trend referred to as the demographic dividend.

According to the Philippine Statistics Authority (PSA), the share of the working-age population rose by one percentage point to 64% in 2020 from 63% in 2015, while the proportion of the young dependent population declined to 31% from 32% over the same period.

Meanwhile, the ASEAN+3 Macroeconomic Research Office (AMRO) said the Philippines recorded the third-fastest average growth in its working-age population at 2.27%, behind Malaysia (2.41%) and Laos (2.39%).

Mr. Rimon said the demographic dividend in the Philippines is expected to last for about 25 years—a period the government must maximize, as neighboring countries like China, Singapore, and Malaysia achieved significant growth during similar windows.

To maximize this window of opportunity, he said the government must invest in quality education, particularly by strengthening the country’s technical-vocational programs and specialized schools, especially those focused on technology.

He also emphasized the need for smoother internship programs for emerging talents.

To further expand the country’s universal healthcare access, Mr. Rimon said the Philippines could also check how government health insurance systems operate abroad.

To further expand the country’s universal healthcare access, Mr. Rimon said the Philippines could also study how government health insurance systems operate abroad. He added that the government must also ensure the health and well-being of the young dependent population.

Source: Business World