World Bank says job reforms to drive PHL growth to nearly 7%

Reforms to enhance job creation and quality could propel Philippine economic growth to close to 7% and transform it into a middle-class economy by 2040, the World Bank said.

“To stay on a path to upper middle-income status and to realize the national ambition of a middle-class society free of poverty by 2040, the country needs a new wave of reforms. Faster, broader, deeper,” World Bank Country Director for the Philippines, Malaysia, and Brunei Zafer Mustafaoğlu said.

In its maiden launch of the Country Growth and Jobs Report for the Philippines on Tuesday, the World Bank said that it is “feasible” for economic growth to accelerate to 6.8% by 2040, along with ramping up employment and wages.

“The implementation of the set of reforms recommended in this report is estimated to increase annual gross domestic product (GDP) growth to 6.8%, create over 5.1 million additional jobs, and boost real wages by 12.9% by 2040,” according to the report.

World Bank models show the Philippines growing by an additional 1.4 percentage points (ppts) if its recommended reforms are implemented.

Broken down, economic growth could increase by 0.78 ppt annually through reforms aimed at productivity and human capital; by 0.45 ppt through deeper capital reforms; and by 0.18 ppt by boosting labor force participation.

The report has about 45 actionable recommendations, with the reforms focused on those three main pillars.

The World Bank said reforms are needed to boost project infrastructure investment, especially in connectivity.

“In an archipelagic economy like the Philippines that has spent so much in connectivity infrastructure, keeping restrictions to inter-island transport, the form of cable path restrictions, is sort of a big distortion, a big cost,” World Bank lead economist for Brunei, Malaysia, the Philippines and Thailand Gonzalo J. Varela said.

“Lifting restrictions to inter-island shipping, domestic shipping, is something that is also going to help the economy grow, and a lot of the growth happens at local levels.”

The multilateral institution also recommended policies to lower entry barriers for businesses; open domestic shipping to lower inter-island transport costs; and strengthen service delivery by local government units.

“Ensuring that local governments have the capacity to deliver the key services that they are mandated to deliver is also going to be crucial,” Mr. Varela added.

To further mobilize private capital, there is also a need to support small and medium enterprises and multinational companies linkages and deepen capital markets.

“The Philippines has received more foreign direct investment in the last few years, and we are yet to see that small and medium enterprises are connecting to these multinationals, that they are gaining from that connection as suppliers, gaining productivity,” he said.

FASTER GROWTH

With these reforms implemented, growth can further accelerate. “What it does is it brings that baseline that we had estimated at 5.4%, closer to that Philippine Development Plan target,” Mr. Varela said.

“It means that if these reforms are implemented by 2040, the Philippine economy would be 24% larger than it would have been otherwise,” he added.

The government is targeting 5.5-6.5% GDP growth this year and 6-7% from 2026 to 2028, according to latest Development Budget Coordination Committee  estimates.

Under the Philippine Development Plan, the government had placed an upper bound of 8% on economic growth targets until 2028.

“To achieve its goal of becoming a middle-class society, the Philippines needs to sustain annual growth of 6-10% for decades,” the World Bank said.

It noted that though job quality remains a concern despite an increase in the number of jobs.

“Despite impressive gains, productivity growth remains weak. Job creation has tilted heavily toward non-tradable sectors, while the tradable economy — so critical for long-term growth and innovation, is shrinking,” Mr. Mustafaoğlu said.

“Top firms are not expanding fast enough. Competition is limited and too many workers remain in low-quality, low-wage jobs.”

The latest data from the local statistics agency showed the Philippines’ unemployment rate went down to 3.9% in May from 4.1% in April, with the number of individuals in the labor force hitting an all-time high of 52.32 million.

“The middle-class society by 2040 national ambition is not a utopia. It is something that is achievable if there is a commitment, both from the public sector to double down on reforms, and from the private sector to innovate and compete,” Mr. Varela said.

Based on the World Bank’s latest income classification, the Philippines still remains a lower middle-income economy, narrowly missing the threshold to achieve upper middle-income status.

The Philippines posted a record gross national income per capita of $4,470, only $26 shy of the World Bank’s upper middle-income threshold of $4,496-$13,935.

ARTIFICIAL INTELLIGENCE

Meanwhile, the World Bank also flagged the impact of disruptive technologies such as artificial intelligence (AI).

“Some jobs in the Philippines are at risk of technology displacement. AI exposure and AI’s potential complementarity can affect employment. The Philippines has slightly fewer jobs comprising routine tasks than its peers,” according to the report.

“However, the Philippines is more exposed to AI’s displacement effect than other East Asia and the Pacific countries due to its higher engagement in cognitive services sectors, such as contact centers in the IT-BPO sector.”

Mr. Varela said these technologies are “fast moving” and so far, they have yet to see displacement in the implementation of AI.

“At the moment, that is not yet happening. The sector is looking at it very carefully, but neither in the Philippines nor in other countries that have a large share of the economy and productivity, we see that these are at the moment being displaced.”

“What AI will do is it will create new jobs, similar to what we saw with other technological changes that created some new jobs and displaced others.”

Mr. Varela said it will be crucial to have labor market institutions that facilitate the movement of people across sectors and activities.

“It’s also having the skills to do that. So, there’s an agenda on skilling and upskilling workers… science, technology, engineering, mathematics, are also going to be increasingly important with AI.”

Mr. Mustafaoğlu said that there is a “very good opportunity” for the Philippines to benefit from the shift to AI.

“It has a young population, and things are happening a lot in the case of Asia and the East Asia region. If we can take that opportunity to actually benefit from this new development of AI and integrate AI and technologies in a way that firms increase their capability… and the economy continues to benefit and grow.”

“That will also attract FDI (foreign direct investment), because when you have those capabilities, foreign firms will also come and invest here with new technologies,” he added.

Source: Business World

Iconic hotels return as tourist arrivals hit 2.9M

The real estate market maintained its growth momentum in the first half of 2025, bolstered in part by a resurgence in tourism and strong demand across the office, industrial, and residential sectors, according to Santos Knight Frank’s latest market report.

Tourism receipts saw a notable boost, supported by the return of iconic hospitality brands, including Sofitel in Cebu and InterContinental in New Clark City. The resurgence of these landmark hotels, along with government-led initiatives such as tourism tax refunds and visa-free entry for key markets, has driven tourist arrivals to 2.9 million in the first half. Luxury hotel rates surged 11 percent, with Taguig commanding the highest average nightly rate at P14,991. High-end developments like Accor-Megaworld’s Mercure and Banyan Tree’s entry in New Clark City further signal confidence in the sector.

Net office absorption hit 192,000 sqm in H1 2025, driven primarily by the BPO sector expanding within Metro Manila. Taguig posted the lowest vacancy rate at 15 percent and the highest average asking rent at P1,248/sqm/month, surpassing the Metro average by 21 percent. A total of 158,000 sqm of new supply entered the market, with over 403,000 sqm more expected by year-end.

Manila was ranked 9th globally in Knight Frank’s Q1 2025 Prime Global Cities Index, with residential prices up 5.5 percent year-on-year. Prime villages like Forbes Park and Dasmariñas posted double-digit price growth, reflecting ongoing demand driven by limited supply.

In the industrial segment, CALABARZON and Central Luzon continue to attract foreign firms in manufacturing, logistics, and pharmaceuticals. Rental rates range from P230 to P290/sqm/month, offering competitive options for multinationals.

The opening of Smith & Wollensky at BGC’s Finance Center highlights the increasing presence of premium global brands, further validating Metro Manila’s growing appeal as a luxury retail and dining hub.

As foreign and local investments continue to flow, the Philippine real estate market demonstrates both resilience and opportunity across sectors — from the return of legacy hotels to the steady rise of industrial parks and luxury developments.

Source: Context

New ecozones seen boosting property demand

The recently approved economic zones (ecozones) in Batangas, Bohol, and Bacolod are expected to spur demand for office, residential, and retail developments in surrounding areas, driving land appreciation and income growth, according to property consultants.

“The announcement of new IT (information technology) parks or the expansion of existing ones introduces new job markets to the area and encourages the emergence of complementary developments,” Jamie Dela Cruz, research manager at real estate agency KMC Savills, Inc., said.

The increasing employment opportunities in these ecozones will raise demand for new residential, commercial, and retail developments, she said.

“People will gravitate to where the jobs are located, as long as the support services are available for business and residential locators,” Roy Amando L. Golez, Jr., director for research and consultancy at Leechiu Property Consultants, said.

“With the increased population, land around the ecozones will naturally start to develop, especially as income grows,” Mr. Golez added.

President Ferdinand R. Marcos, Jr. approved four new ecozones in the first half of the year, with projected investments totaling P3.2 billion, the Philippine Economic Zone Authority (PEZA) said last week.

Two of these ecozones are expansions of a manufacturing zone in Batangas, while the other two are new IT parks in Tagbilaran City and Bacolod City in the Visayas.

Ecozone developments are also likely to attract foreign investors and new locators due to improved procedures and incentives in the area, Ms. Dela Cruz said.

“They facilitate easier business operations by offering incentives and streamlining processes, helping attract BPOs (business process outsourcing) firms and foreign investments. This is evident in the leasing commitments seen in IT parks, even as their PEZA registrations are still underway,” she noted.

“The sustained demand from the IT-BPM sector in key provincial cities such as Bacolod and Bohol indicates that office rental rates are likely to remain stable, with the potential for moderate increases.”

The government also stands to benefit from the new ecozones through higher tax collections amid improved land values, Mr. Golez said.

To accommodate the increased need for land and space, local government units must improve their land use zoning near these ecozones, Mr. Golez noted.

“That means there is a need to create communities for commercial, logistics, residential, retail, and some institutional facilities to ensure long-term organized growth,” he said. “Ultimately, this will push up land values and rental rates in the area.”

A total of 32 ecozones have been proclaimed under the Marcos administration, generating around P13.41 billion in investments.

Source: Business World