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

Philippines may grow below 4% in near term

Philippine economic growth may fall below 4% in the near term as the billion‑peso flood control scandal drags on, affecting government spending and dampening consumption and sentiment, Nomura Global Markets Research said.

“I think going forward, these spillover effects (from the graft scandal) will also expand,” Nomura Chief Association of Southeast Asian Nations (ASEAN) Economist Euben Paracuelles said.

The scandal, which curbed state spending last year, is expected to dampen household consumption and business investment amid weaker sentiment, he added.

“If the drag is now sort of becoming more broad-based, not just the drop in government spending, you’ll see growth coming potentially below 4%, at least in the near term,” he said.

Nomura now expects the gross domestic product (GDP) to expand by 5.3% in 2026 from 5.6% previously.

This is still within the government’s recently revised 5-6% target this year.

Economy Secretary Arsenio M. Balisacan earlier said growth targets were lowered through 2027, after GDP growth likely slowed to 4.8-5% in 2025 amid the flood control controversy.

The government cut its 2026 projection to 5-6% and to 5.5-6.5% for 2027 from the earlier 6-7% range. The 2028 target was retained at 6-7%.

Mr. Paracuelles anticipates that the government will roll out catch-up spending plans, possibly in the second half of the year.

Meanwhile, the Philippines may earn a credit rating upgrade if the government manages to resolve the flood control corruption issue within a year, Mr. Paracuelles said.

“The key for me is 12 months from here, when they need to decide on whether they need to upgrade the Philippines, I think it’s still quite uncertain,” he said.

“If, at that point there will be some resolution to the corruption scandal, they could potentially upgrade the Philippines to ‘A-,’ right? But on the other hand, if there’s still no clarity, they could potentially — the risk I see is from ‘positive,’ we go back to ‘stable,’” he added.

Last year, former Finance Secretary Ralph G. Recto said the multibillion-peso flood control corruption mess may have derailed the country’s chances of earning a credit rating upgrade from S&P Global Ratings.

S&P said it kept its long-term “BBB+” and short-term “A-2” credit ratings on the Philippines, as well as its “positive” outlook.

A positive outlook means the Philippines’ credit rating could be raised over the next two years if improvements are sustained.

At the same time, Economy Undersecretary Rosemarie G. Edillion said the government expects the peso to move “sideways” after hitting a fresh low on Jan. 7.

“It really depends on what’s happening in the US as well versus what’s happening with our country. I think right now with the recent move of the US, everybody’s still weighing in. Is this a good or a bad thing?” she said in the same program on Thursday.

“Others will still adopt a wait-and-see attitude over the next few days,” she added.

The peso hit a record low on Jan. 7, closing at P59.355.

Source: Business World

PHL trims 2026, 2027 growth goals

The Philippine government lowered its economic growth targets for this year and 2027, with the impact of the corruption scandal still expected to be felt in the first half, according to Economy Secretary Arsenio M. Balisacan.

At a briefing on Monday, Mr. Balisacan said the Development Budget Coordination Committee (DBCC) had lowered its gross domestic product (GDP) growth targets to 5%-6% for 2026 and 5.5%-6.5% for 2027, following a meeting in December.

These new targets are slightly lower than the earlier 6-7% growth goal for 2026 to 2028.

However, the DBCC retained the 6-7% GDP growth goal for 2028. President Ferdinand R. Marcos, Jr.’s term will end in mid-2028.

“The emerging number, growth scenario for 2025, is something like 4.8-5%,” Mr. Balisacan said. “But if you achieve 5% for the entire year, because the first three quarters’ average is already 5%, that still puts the economy into one of the fastest-growing economies in Asia.”

If realized, the 2025 GDP growth would be much slower than the 5.7% GDP growth in 2024 and below the government’s 5.5-6.5% GDP target.

This will also mark the fourth straight year that the Philippines will miss its GDP growth target.

Economic growth slowed to an over four-year low of 4% in the third quarter, as the flood control scandal affected government spending and hurt business and consumer confidence.

“The developments last year are likely still to be felt this year, although in a diminishing effect, and so we expect growth perhaps in the first quarter or at least in the first half to be still [not quite] as rosy as we would want it to be,” Mr. Balisacan said.

A corruption scandal involving flood control projects has weighed on government spending and household consumption following Mr. Marcos’ exposé in his fourth State of the Nation Address last July. 

Mr. Balisacan said the economic team still expects consumption to drive the economy despite massive budget cuts for infrastructure projects, specifically on flood control.

“Consumption, that’s likely going to be still, supported by employment, growth… and remittances. But we will also expect the rebound of consumer confidence… We do expect that the broad economy will grow as sufficiently strong especially toward the second half,” he said. 

Mr. Balisacan said economic activity should accelerate later in 2026 as governance reforms and improvements in public sector systems take effect, as reflected in the national budget. 

He said the downward revision to the targets reflected global and domestic uncertainties and follows similar assessments by multilateral institutions such as the International Monetary Fund (IMF), World Bank and Asian Development Bank (ADB).

The IMF last month trimmed the 2026 growth projection for the Philippines to 5.6% from 5.7% previously. The ADB sees the Philippines growing at 5.7%, while the World Bank expects GDP growth at 5.4%.

Mr. Balisacan said the recalibration of growth targets will not derail fiscal planning, as authorities remain focused on improving the quality of growth.

He cited increased budget allocations for health, education, social protection and job creation as key to making expansion more inclusive and accelerating poverty reduction.

Jonathan L. Ravelas, a senior adviser at Reyes Tacandong & Co., said the lowered targets reflect “realism” but also underscore that structural reforms are progressing too slowly.

“It signals that we’re under pressure to lift productivity and attract investments. Without bold action — on infrastructure, ease of doing business, and FDI (foreign direct investments) — we risk settling for a 5-6% growth ceiling instead of breaking past 7%,” he said via Viber.

“The message is clear: execution matters now more than ever.”

Ser Percival K. Peña-Reyes, director of the Ateneo Center for Economic Research and Development, said lowering official growth targets can bolster policy credibility by bringing expectations closer to prevailing economic conditions and reducing the risk of repeated forecast misses.

“However, if not accompanied by visible, credible reform action, it also risks signaling structural weaknesses in the economy and in governance under the current administration,” he said.

“Ultimately, how targets are framed and what policy measures accompany them will determine whether trimming boosts credibility or fuels concerns about economic weaknesses.”

Source: Business World