Growth rebound seen; structural changes urged

Philippine economic growth will likely rebound this year after a marked slowdown in 2025, a brokerage firm said, lifted by a recovery in public infrastructure spending and the impact of interest rate cuts.

Philstocks Financial Inc. said 2026 growth could hit 5.0 percent — at the bottom end of the government’s 5.0- to 6.0-percent goal for the year — but also warned of risks from an inflation uptick and weaker exports.

State spending, which slowed last year as a flood control project scandal unfolded, was forecast to recover as a result of governance reforms while consumption — also affected by the corruption mess — is expected to strengthen as policy rate cuts work their way through the economy.

Remittances from Filipinos working abroad will also provide support to consumer spending and residential investments, Philistocks said.

This will likely be supported by a weaker peso, which is expected to average at P59.5 to the dollar — a new record low — amid a continued balance of payments deficit and lingering investor concerns.

Inflation, which averaged 1.7 percent last year, is projected to accelerate to 3.2 percent in 2026 — within the 2.0- to 4.0-percent target — due to stronger demand, higher food prices and the weaker peso.

The Bangko Sentral ng Pilipinas, which has lowered key interest rates by 200 basis points beginning August 2024 as inflation returned to target, is expected to order another cut this year to boost economic growth.

Philstocks said the economic rebound will also be seen in the stock market, with the benchmark Philippine Stock Exchange index (PSEi) expected to hit the 7,100 level after languishing in the low 6,000s last year.

The 2026 recovery will be supported by robust corporate fundamentals and an estimated 15-percent earnings growth among index members, the brokerage said.

It noted that as of January 30, 2026, the PSEi was trading at a price-to-earnings ratio of 10.5 times, well below its five-year average of 14.4x and the regional average of 19.0x, indicating that local stocks remained at attractive levels.

Sector-wise, Philstocks expects residential property developers, banks, consumer companies and nickel miners to benefit from low interest rates, improving labor market conditions and potential gains in global nickel prices.

As this developed, an economist said that boosting the economy was not just about increased consumption and spending but expanding the sources of growth.

“There should be a wider discussion on the structure of the economy,” Bank of the Philippine Islands lead economist Emilio Neri said in a commentary.

“The country cannot remain overly reliant on a narrow set of growth drivers such as consumption and government spending.”

The limited set of growth sources was highlighted last year by the corruption scandal and the vulnerability was also evident during the Covid-19 pandemic, he said.

“For many years, the Philippine economy has been heavily reliant on consumer spending, supported by remittances and the BPO (business process outsourcing) sector,” Neri said.

“When the pandemic hit, the economy contracted sharply as lockdowns severely disrupted consumption,” he added, noting that countries like Vietnam, with more diverse growth drivers, were better able to withstand the shock.

The same pattern was said to be showing now with growth largely due to household spending.

“[T]he slowdown would likely not have been as severe if the economy had other strong engines of expansion beyond consumption,” Neri said.

“Even with the sharp decline in government construction spending, growth might have been more acceptable if the production sectors had been in a stronger position to offset the drag, specifically agriculture and manufacturing,” he added.

“Greater emphasis must therefore be placed on strengthening production sectors such as agriculture, manufacturing, and construction, supported by high-quality infrastructure that enhances the economy’s ability to produce.”

“The economy remains strong on the demand side, but it is still unable to produce a significant portion of what it consumes,” he noted.

Quality of spending will also be critical for a recovery this year.

Neri said growth could stay weak in the first half of 2026 but rebound in the second half, with full-year growth likely to hit 5.1 percent.

He added that the weak growth reading has also raised the chances of more Bangko Sentral rate cuts.

“With growth likely to remain weak in the first half of 2026, another cut could follow after a potential move in February, especially as inflation is expected to remain within target,” Neri said.

Source: Manila Times