BMI keeps 5.2% growth estimate

Fitch Solutions unit BMI has kept its 2026 growth forecast for the Philippines despite the last year’s miss as it expects public and private investments to recover.

BMI sees the Philippine economy expanding by 5.2% this year, unchanged from its earlier projection.

“For now, we are maintaining our 2026 growth forecast at 5.2%, but the lower 2025 base makes this a more pessimistic outlook,” it said in a report.

This is within the government’s 5%-6% growth target for the year.

Philippine gross domestic product (GDP) expanded by 3% in the fourth quarter, slower than 5.3% in the same period a year prior and the revised 3.9% print in the third quarter, the government reported last week.

This was the slowest quarterly print in nearly five years or since the 3.8% contraction in the first quarter of 2021. Outside of the coronavirus pandemic, this was the worst since the 1.8% growth recorded in the fourth quarter of 2009, or during the Global Financial Crisis.

This brought full-year 2025 GDP growth to 4.4%, below the government’s 5.5%-6.5% goal. This was slower than 2024’s 5.7% and was the weakest annual expansion since the 3.9% in 2011, counting out the 9.5% contraction in 2020 due to the pandemic.

Officials said tighter public spending and weak investor confidence due to the flood control scandal continued to drag growth.

BMI said it sees both public and private investments rebounding this year as the government works to ramp up spending and amid the lagged impact of the Bangko Sentral ng Pilipinas’ (BSP) past rate cuts on demand.

“The government probably underspent its capital budget in 2025… Beyond rhetoric from government officials pledging catch-up capital spending, we have not seen any indication of when the Senate investigation into corruption will conclude or when delayed infrastructure projects will be restarted,” it said.

“We would, however, be surprised if policymakers allowed the probe to drag on public capex (capital expenditure) for much longer — a quick recovery in infrastructure spending is necessary to hit the government’s 5-6% growth target for 2026. Our best guess for now is that the government will make up for the underspending of the capital budget in H2 (second half) 2026, with the low base flattering GDP growth in H2.”

It added that household consumption may also rebound this year, with the peso’s weakness to increase the value of remittances from migrant Filipinos.

However, the country’s external sector could weaken as last year’s export strength was largely driven by frontloading ahead of higher tariffs and increased electronics demand due to the artificial intelligence (AI) boom — which are both expected to lose steam this year, BMI said.

“Early indicators are starting to reflect deteriorating external orders… The global semiconductor upcycle appears to have peaked, as firms reassess the returns on AI-driven investments. This will materially affect electronic exports — about 54% of Philippine exports. Accordingly, we expect export growth to moderate as frontloading tapers and the higher 2025 base will mechanically make strong year-on-year growth hard to sustain,” it said.

“Should there be continued delays to infrastructure spending, household spending and exports will not be enough to offset weaker public spending, posing downside risks to our forecast. Inflation may also run hotter than we forecast if oil prices get another boost from rising geopolitical risks, limiting the BSP’s room for rate cuts.”

BMI expects the Monetary Board (MB) to deliver 50 basis points (bps) in cuts this year.

For its part, Deutsche Bank Research said the “surprise” growth slowdown last quarter increases the odds of a sixth straight rate cut by the BSP this month.

“We think that a February rate cut from the BSP is now almost certainly ‘on the table,’” it said in a report.

“We also see a rising likelihood of another rate cut in H1  (first half) given the likely wider-than-expected negative output gap,” it added “We will refresh our view pending more up-to-date data from 2026, including inflation, government disbursements, and BSP’s guidance in the February MB meeting.”

BSP Governor Eli M. Remolona, Jr. said on Sunday that a cut is possible at their Feb. 19 policy review if the fourth-quarter GDP slowdown proves demand-driven.

“If we can help on the demand side and still keep inflation low, then of course we’ll help,” he said.

He added that they will continue to assess the available data and decide “one meeting at a time.”

The Monetary Board has slashed benchmark borrowing costs by 200 bps since August 2024, bringing the policy rate to 4.5%.

Source: Business World

Economy may see faster growth in 2026, 2027

The Philippine economy may expand at a faster pace this year and in 2027, supported by household consumption and softer inflation, the United Nations (UN) said, as the country rebounds from a corruption scandal.

In its latest World Economic Situation and Prospects report, the UN projected the Philippine gross domestic product (GDP) to grow by 5.7% this year and 6.1% in 2027.

“In the Philippines, low inflation, robust labor market conditions, and steady remittance inflows have buoyed consumer spending, while government spending and investment have further supported growth,” the UN said.

The UN’s forecasts are both within the revised government’s 5-6% growth target for this year and within the 5.5-6.5% target for 2027.

It also noted that GDP growth likely averaged 5% in 2025, below the government’s 5.5-6.5% target and the actual 5.7% growth in 2024.

Economy Secretary Arsenio M. Balisacan earlier said the Philippines’ economic growth may have slowed to 4.8% to 5% in 2025, due to the controversy on anomalous flood control projects that affected government spending and hurt business and consumer confidence.

The Philippine Statistics Authority will release official fourth-quarter and full-year 2025 GDP data on Jan. 29.

Despite this, the Philippines is projected to be the second-fastest-growing economy in Southeast Asia this year and in 2027.

Vietnam is projected to grow by 6% this year, followed by the Philippines (5.7%), Cambodia (5.1%), Indonesia (5%), Malaysia (4.0%), Laos (3.8%), Timor-Leste (3.3%), Myanmar (3%), Thailand (2%), Singapore (1.8%), and Brunei (1.5%).

For 2027, Vietnam is still likely to post the fastest growth at 6.2%, followed by the Philippines (6.1%), Cambodia (5.5%), Indonesia (5.2%), Malaysia (4.5%), Laos (4%), Timor-Leste (3.2%), Myanmar (3%), Thailand (2.6%), Singapore (2%), and Brunei (2.1%).

The Philippines’ forecast is above than the UN’s projected average growth of 4.4% for East Asia this year and in 2027.

At the same time, the UN also anticipates inflation settling at 2.3% in 2026 and 2.8% in 2027, slower than the BSP’s 3.2% forecast for 2026, and 3% in 2027.

Headline inflation picked up to 1.8% in December, which brought the full-year average to 1.7% in 2025.

Source: Business World

ADB expects PHL household spending to improve in 2026

The Asian Development Bank (ADB) said household consumption in the Philippines is likely to rebound in 2026 on the back of easing inflation and interest rates, after a corruption scandal and adverse weather dampened spending in recent months.

However, analysts warned that depending on tax relief to spur consumption could undermine fiscal consolidation efforts.

ADB Country Director for the Philippines Andrew Jeffries said household final consumption expenditure, which accounts for over 70% of the economy, is expected to “strengthen in 2026 amid low inflation and accommodative monetary policy.”

“More broadly, policies need to focus on raising incomes and reducing vulnerability,” he said.

Mr. Jeffries said these measures should include expanding higher‑quality employment, boosting productivity through skills upgrading, and targeted social protection for vulnerable households.

This comes as private consumption growth moderated in the third quarter of 2025, particularly discretionary spending on recreation, hotels and restaurants, partly due to weather‑related disruptions, he said.

Data from the Philippine Statistics Authority (PSA) showed household final consumption expenditure slowed to 4.1% in the third quarter from 5.2% a year ago.

This was the slowest since the 4.8% contraction in the first quarter of 2021. Excluding pandemic years, it was the slowest growth in private spending since the 2.6% increase in the third quarter of 2010.

The PSA will release the fourth-quarter and annual 2025 preliminary gross domestic product (GDP) data, including household consumption, on Jan. 29.

Despite the slower growth in the third quarter, the ADB said spending on essentials, particularly food, remained resilient, supported by low inflation.

Inflation picked up to 1.8% in December from 1.5% in November. This brought the average to 1.7% in 2025.

For 2026, the central bank sees inflation accelerating to 3.2%, but still within the 2-4% target band.

The Bangko Sentral ng Pilipinas (BSP) has so far delivered a total of 200 bps in cuts since August 2024, after it lowered its policy rate by 25 bps to an over three-year low of 4.5% at its Dec. 11 meeting, amid subdued inflation and sluggish growth.

The Monetary Board is scheduled to hold six regular policy meetings in 2026, with the first one set on Feb. 19.

TAX RELIEF?

To spur household demand and ease public concerns over flood control issues, a lawmaker had proposed giving tax relief to Filipinos, but analysts were divided, saying the measure could lift spending but risk undermining fiscal consolidation.

Senator Erwin T. Tulfo filed a bill in the Senate in October to provide a one-time, one-month income tax holiday for individual taxpayers receiving compensation income, effective on the first payroll month immediately following the bill’s approval.

Senate Bill No. 1446, or the One-Month Tax Holiday bill, remains pending at the committee level.

“A tax relief will only delay fiscal consolidation,” Foundation for Economic Freedom President Calixto V. Chikiamco said.

The Marcos administration aims to bring the deficit down to P1.56 trillion, or 5.5% of GDP, in 2025, and eventually to P1.55 trillion, or 4.3% of GDP, in 2028.

Mr. Chikiamco noted that many factors influence consumer spending, such as unemployment, inflation, and wage growth.

“Depreciation of the peso will increase OFW (overseas Filipino worker) incomes and spur consumer spending without decreasing government revenues,” he added.

The peso has breached the P59-a-dollar mark several times since November and sank to a record low of P59.22 on Dec. 9.

Meanwhile, Jonathan L. Ravelas, a senior adviser at Reyes Tacandong & Co., argued that tax relief can boost private consumption, but the program has to be “smart and targeted.”

“Tax relief can help revive spending, especially after a year of high prices and tight budgets,” he said.

“Focus on essentials like VAT (value-added tax) breaks on food and utilities, and give relief to lower- and middle-income families who are more likely to spend,” Mr. Ravelas added.

However, he said tax relief must be “time-bound,” and paired with job creation and price stability, so people feel confident to open their wallets.

“The problem on spending is due to the uncertain environment due to ‘floodgate,’ the government should fix its trust issues so confidence will come back,” Mr. Ravelas said, referring to the flood control mess.

Meanwhile, the ADB’s Mr. Jeffries said improving VAT efficiency and sustaining gains in tax administration through digitalization are key to raising government revenue.

“The proposed tax on single-use plastic bags is a notable measure, serving both revenue and environmental objectives by helping address plastic and solid-waste challenges,” he said.

BIR Commissioner Charlito Martin R. Mendoza earlier said the proposed tax measure is projected to generate between P6 billion and P10 billion annually, “depending on the rate and coverage.”

“Beyond taxation, sustained improvements in expenditure efficiency and public financial management are crucial, particularly to strengthen investment planning, project execution, and governance,” Mr. Jeffries said.

Source: Business World