PHL upper middle-income status by 2026 seen requiring 6% growth

The Philippines needs to sustain 6% growth until next year to achieve upper middle-income status by 2026, according to National Economic and Development Authority (NEDA) Secretary Arsenio M. Balisacan.

“I think the upper middle-income status is challenging, but I think if we get 6% this year, 6% next year, we should achieve that upper middle-income status next year,” Mr. Balisacan told reporters during a briefing last week.

The Marcos administration is hoping to be reclassified as an upper middle-income economy this year or by 2026.

Growth of 6% matches the lower end of the government’s 6-8% growth target band for 2025-2028. It would exceed the 5.7% gross domestic product (GDP) posted in 2024, and the 5.5% in 2023.

The World Bank classifies countries by their gross national income (GNI). The four categories are low income, lower middle income, upper middle income and high income.

The Philippines is currently a lower middle-income country with GNI per capita of $4,230 in 2023, up from $3,950 in 2022.

Upper middle-income status is expected to require GNI per capita of between $4,516-$14,005.

Reinielle Matt M. Erece, economist at Oikonomia Advisory and Research, Inc. said upper middle-income status by next year is “still possible.”

“But it became more difficult as the economy takes a hit from heightened geopolitical risks especially in trade, remittances, and foreign investment,” he said.

US President Donald J. Trump on April 9 paused his new reciprocal tariffs for 90 days, although the baseline 10% tariff on almost all US imports remains in effect.

The Philippines faced a 17% reciprocal tariff, the second lowest in Southeast Asia.

Mr. Erece said Philippine GDP must expand by 6-7% annually, though he expects growth to be at the lower end of the target.

Peter Lee U, dean of the University of Asia and the Pacific’s School of Economics, said should the tariffs cause a global recession, it could prevent the Philippines from moving up the income category.

Such a recession can “cause our GDP/gross national product to shrink and our GNI per capita to fall. It’s anybody’s guess whether that will happen. Also, if a global economic slowdown happens, it may take until 2026 before we feel the full effect,” he said via Viber.

JP Morgan estimates a 60% probability of the world economy going into recession by year’s end, up from 40% in March.

Jose Enrique A. Africa, executive director at think tank IBON Foundation said even if Mr. Trump backtracks on the tariffs, inflation is expected to slow growth this year and the next.

“The reputational damage to the US has been done and countries will start adjusting to a world of even more uncertain supply chains, fiscal austerity to accommodate security spending from the vacuum being left by the US, and more volatile finances from a shaken dollar,” he said via Viber.

“These make it unlikely for the Philippines to rise to upper middle income this year — the only question really being how long this reclassification is going to be delayed,” he added.

Before the tariff announcement, World Bank Country Director for the Philippines, Malaysia, and Brunei Zafer Mustafaoğlu said in February that the Philippines is likely to reach upper middle-income status by 2026.

However, Mr. Balisacan said instead of the fixation on income status, the more significant indicators are employment, poverty, literacy and hunger and living standards, rather than GDP or GNI.

Mr. Africa said the Marcos administration instead should prepare to cushion the economic disruption on the vulnerable members of society.

“It should expand public education, health, housing and social protection services, and give redoubled support to domestic food production to moderate prices. The backsliding on the sustainable development goals… risks getting even worse,” he said.

Source: Business World

Moody's now expects PH to miss GDP target

Moody's Analytics trimmed its economic growth forecasts for the Philippines to below 6% for this year and 2026, reflecting the impact of uncertainties arising from the United States’ tariff policies.

However, Moody’s Analytics economist Sarah Tan said the Philippines still stands out as one of the fastest-growing economies in Southeast Asia.

Moody’s Analytics projects Philippine gross domestic product (GDP) to grow by 5.9% this year, slightly slower than its 6% baseline forecast in November.

For 2026, it also trimmed its Philippine GDP growth projection to 5.8% from 6.1% previously.

If realized, these forecasts would both fall short of the government’s 6-8% target for 2025 and 2026.

“While the expected growth is shy of the government’s target, it will mark the strongest expansion in three years,” Ms. Tan said in a webinar on Wednesday.

“Private consumption and investment will be the key driver of growth in the Philippines, supported by a stable inflation and easing monetary policy.”

Household spending typically accounts for about three-fourths of the Philippine economy.

On the other hand, Ms. Tan said the growth outlook was downgraded to account for the impact of recent US tariff policies.

Moody’s Analytics Head of Japan and Frontier Market Economics Stefan Angrick said the previous forecasts were produced in November before US President Donald J. Trump was elected president.

Since taking office in January, Mr. Trump has imposed a 20% levy on all Chinese imports; 25% tariffs on imports from Canada and Mexico, as well as duties of 25% on all steel and aluminum imports.

“Anything that happens outside the region, trade friction will depress growth elsewhere in the world. That will then feed into aggregate demand and depress growth in the Asia-Pacific region indirectly,” Mr. Angrick said.

“For (Asia-Pacific) overall, we expect GDP growth this year to come in just north of 3.5%, which is down from about 4% last year.”

The region is more exposed to these risks as it is dependent on free trade and is subsequently more vulnerable to a slowdown in global trade, Mr. Angrick said.

However, he noted that some parts of Southeast Asia do not heavily export to the US.

“The direct exposure to changes in the US tariff regime is more moderate,” he added.

Ms. Tan said the Philippines’ reliance on exports is “pretty small” compared with its neighbors.

“The impact of Trump policies on the Philippine economy is not as large as what we’re seeing in other countries, maybe like in Thailand or Indonesia,” she said.

“But the reciprocal tariffs or any tariffs that come from the US will definitely hurt the Philippine exporters, only because the US is the largest export destination for the Philippines.”

Mr. Trump has also threatened to impose reciprocal tariffs on countries that tax US imports as early as April.

“It is unlikely to leave a huge dent on the macroeconomy, but it will definitely hurt these exporters and manufacturers,” Ms. Tan added.

The US is the top destination for Philippine-made goods. Last year, Philippine exports to the US were valued at $12.12 billion or nearly 17% of total export sales.

EASING INFLATION

Meanwhile, Moody’s Analytics expects headline inflation to remain within the central bank’s 2-4% target until 2026.

“This year, we are expecting inflation to ease further and interest rates to go down even more and so that will boost private spending and investment,” Ms. Tan said.

Moody’s Analytics sees inflation averaging 2.8% this year and 3% in 2026.

The Bangko Sentral ng Pilipinas’ (BSP) baseline forecast for inflation is at 3.5% for both 2025 to 2026. Accounting for risks, inflation could hit 3.7% in 2026.

Moody’s Analytics Chief APAC Economist Steve Cochrane said central banks in the region will be able to further support their economy by reducing interest rates.

“It may be a very slow process, but there will be some continued normalization of rates going forward,” he added.

The BSP last month opted to keep its key rate steady at 5.75% amid global trade uncertainties.

However, BSP Governor Eli M. Remolona, Jr. has said they are still on an easing cycle, signaling the possibility of a 25-basis-point (bp) cut at the Monetary Board’s meeting on April 10.

Ms. Tan said they expect the BSP to cut by 50 bps to 5.25% by the end of 2025.

“As US tariffs could slow global demand and the pace of interest rate normalization, the Philippine central bank will be more cautious about monetary easing to avoid significant weakening of the peso,” she said.

STRUCTURAL REFORMS

Meanwhile, the International Monetary Fund (IMF) separately said that Southeast Asia, including the Philippines, could stand to benefit from the “ambitious” reform packages.

“Countries such as Indonesia, Malaysia, the Philippines, Thailand, and Vietnam — the five largest emerging markets out of 10 economies in the Association of Southeast Asian Nations (ASEAN) — could increase long-term real economic output,” IMF economist Anne-Charlotte Paret Onorato said in a blog.

On average, the IMF said growth in these economies could increase by 1.5% to 2% after two years and even as high as by 3% after four years if “comprehensive and simultaneous economy-wide reform packages” are implemented.

These reforms not only support faster potential growth but also help economies attain higher income levels, it said.

“Wide-ranging reforms can build resilience to shocks in the face of uncertainties and help the private sector drive growth,” it said, but noted these reforms often entail “substantial political economy challenges.”

The main structural areas these economies must address include trade openness, the IMF said.

“While the six main ASEAN economies are generally more open than the average emerging market in the Group of 20, these countries still have more barriers to trade  —and are relatively harder to trade with,” Ms. Onorato said.

“Improving logistics and trade facilitation to make cross-border transactions faster, cheaper, and less uncertain would help the five largest ASEAN emerging market countries boost economic growth.”

The multilateral institution also called for the need to address the “lagging services trade.”

The Philippines’ trade in services fell by 19.8% to $14.58 billion in 2024 from $18.18 billion in 2023, latest data from the central bank showed.

This as service exports rose by just 7.5% year on year to $51.98 billion from $48.33 billion compared with imports, which jumped by 24% to $37.4 billion from $30.15 billion.

This could help “maximize pro-competitive gains and technological spillovers, while creating high quality jobs,” the IMF said.

“In fact, the transition to a more services-based economy by emerging markets does not mean that the scope for catching-up with advanced economies’ income levels would be diminished — however, making the most of it requires facilitating the transition to highly productive services.”

The IMF noted the need for high-quality education and more apt job-matching to enhance productivity.

ASEAN economies must also improve investment attractiveness and further boost financial inclusion, it added.

“On human development, it is striking that all major ASEAN emerging market countries enjoy a demographic advantage relative to benchmarks,” Ms. Onorato said.

“In other words, they generally have relatively more people working than dependents (such as children and elderly individuals). Therefore, there is an opportunity to implement reforms now before aging populations increase fiscal burdens such as pensions and healthcare.”

Moving forward, the IMF said deliberate and ambitious structural reform packages can help bolster sustainable and inclusive growth.

“A major simultaneous reform package improving business and external regulation, governance, and human development could raise output levels by up to 3% after four years. The benefits from enacting a single major economic reform would be more modest.”

These reforms can also make economies more resilient amid external headwinds.

“Amid a shock-prone global environment, ambitious economy-wide structural reforms can also help build resilience by fostering diversified, broad-based, inclusive growth at the domestic level, and ensuring a credible and robust institutional framework to further unleash private sector-driven growth.”

Source: Business World

Below-target growth likely in 1st half of 2025

Philippine economic growth is likely to fall short of the government’s target in the first two quarters, GlobalSource Partners said.

“Our assessments show that GDP (gross domestic product) may be expected to increase within a narrow band over the next two quarters — rising from just above 5.7% in first quarter to approximately 5.9% in second quarter,” GlobalSource country analysts Diwa C. Guinigundo and Wilhelmina C. Mañalac said in a report.

This would be below the Development Budget Coordination Committee’s (DBCC) 6-8% target band until 2028.

GlobalSource’s first-quarter growth forecast of 5.7% would be slower than the 5.8% print in the same period in 2024.

For the second quarter, GlobalSource’s 5.9% GDP growth projection would be slower than the 6.4% print in the same period in 2024.

“This modest upward trend is driven by resilient historical GDP performance, growth in the services sector, and short-term USD/PHP exchange rate effects,” GlobalSource said.

However, local and geopolitical risks may affect the growth outlook in the first half.

“If both domestic and geopolitical shocks occur in a big, adverse way, they could unsurprisingly alter the outcome of this initial analysis,” GlobalSource said.

National Economic and Development Authority (NEDA) Secretary Arsenio M. Balisacan earlier this month said government growth targets may need to be revisited amid rising global economic uncertainty.

“It’s too early to change at this point but we need to be watchful and be flexible because of this uncertainty,” he said.

A DBCC meeting is scheduled to be held at the end of March.

Budget Secretary and DBCC Chair Amenah F. Pangandaman has said that the committee historically keeps its target unchanged during the first and second quarters of the year.

Earlier, Finance Secretary Ralph G. Recto said that “6-6.5% [growth] is doable for 2025.”

However, GlobalSource said the Philippine economy should grow faster than the DBCC’s 6-8% target.

“The economic scarring of the pandemic actually requires the Philippines to grow by much more than the targeted growth rates of 6-8% through the end of the Marcos administration. Persistent poverty and income inequality are additional imperatives to grow by much more,” it said.

During the MAP Economic Briefing and General Membership Meeting on March 12, Mr. Guinigundo said that Philippine GDP growth of 6-8% annually would bring the economy to around P60 trillion by 2036

“To overcome this setback, growth will have to be between 9% and 9.5% through 2028 to be able to return to the original growth path,” he said.

In 2024, the economy expanded by 5.6%, from the 5.5% print in 2023 amid subdued consumption and lower farm output. It fell short of the government’s revised 6-6.5% target.

“It’s easy to blame the onslaught of typhoons during the latter part of the year, which constrained economic expansion. Such weather disturbances could indeed explain part of the failure, but not the entire dynamics,” GlobalSource said.

The economy grew by 5.2% in the fourth quarter, slower than the 5.5% print in the same period in 2023 after a series of typhoons hurt agricultural output.

“Sufficient stock buffering, mangrove propagation, zonal building along the coasts could have also mitigated the effects of these supply shocks. Yes, food inflation likewise deterred economic growth because private consumption spending was generally restrained,” GlobalSource said.

NEDA Undersecretary for Policy and Planning Group Rosemarie G. Edillon attributed the weaker-than-expected GDP growth in 2024 to “extreme weather events, geopolitical tensions, and subdued global demand.”

Source: Business World