The Philippine economy is expected to continue growing through 2026, but emerging global and domestic risks could affect the country’s ability to sustain momentum as it moves closer to upper-middle-income status, according to a new study by the òòò½´«Ã½ (òòò½´«Ã½).
In its discussion paper, “Macroeconomic Prospects of the Philippines in 2025–2026: Restoring Confidence amid Glocal Transitions”, òòò½´«Ã½ Senior Research Fellow John Paolo R. Rivera, former Research Specialist Mark Gerald C. Ruiz, and Research Specialist Ramona Maria L. Miral, reviewed the country’s economic performance in 2024 and early 2025 and assessed prospects over the medium term.
The study projects the economy to grow from 5% in 2025 to 5.3% in 2026, supported by domestic demand, infrastructure spending, and continued expansion in the service sectors.
While these projections indicate resilience, the authors noted that growth has remained below government targets and that maintaining progress will require careful risk management.
The economy reached 5.7% in 2024, driven mainly by the services and industry sectors. While this marks continued recovery, it still fell short of the government’s growth targets for the second year in a row.
“The Philippine economy continues to inch closer to UMIC status, even as it navigates persistent internal and external headwinds,” the authors noted.
The study points out that the country narrowly missed the UMIC threshold in 2024, emphasizing how close—but also how vulnerable—the transition remains.
In the first half of 2025, growth moderated slightly to 5.4%, reflecting softer investment activity and continued uncertainty in global trade.
Inflation eases, giving households some breathing room
One bright spot in the report is inflation.
Headline inflation averaged 3.2% in 2024, well within the Bangko Sentral ng Pilipinas’ (BSP) target range of 2% to 4%. By October 2025, inflation had further eased to 1.7%.
This improvement allowed the BSP to begin easing monetary policy, thereby lowering borrowing costs. Still, the authors caution that price stability remains sensitive to factors such as food supply, exchange rate movements, and global commodity prices.
For ordinary Filipinos, lower inflation means less pressure on daily expenses—but the study suggests that households remain cautious after several years of high prices.
Services lead, agriculture lags
The study highlights the services sector as the main engine of growth, supported by wholesale and retail trade, finance, construction-related services, tourism, and the business process outsourcing (BPO) industry. The BPO sector, in particular, continues to benefit from global demand for digital and AI-enabled services.
In contrast, agriculture, forestry, and fisheries contracted by 1.6% in 2024, largely due to climate-related disruptions and disease outbreaks. While the sector rebounded in early 2025, the authors stress that agriculture remains highly vulnerable to weather shocks and structural weaknesses.
Jobs improve, but quality and participation raise concerns
Labor market conditions have generally improved, with unemployment falling below 3.8% in 2024.
However, the study notes that labor force participation has declined, raising questions about long-term workforce sustainability.
This suggests that while jobs are being created, many Filipinos may be shifting to overseas employment or leaving the labor force altogether due to caregiving responsibilities or schooling.
Trade, peso volatility, and global risks
Externally, the Philippines continues to rely heavily on imports, resulting in a persistent trade deficit. Services exports—especially Information Technology and Business Process Management—help cushion the impact, but new global risks are emerging.
The authors flag potential disruptions from US tariff escalation, supply-chain realignments under the Regional Comprehensive Economic Partnership, and geopolitical tensions.
The recent weakening of the peso, which hovered near PHP 58 to PHP 59 per dollar in late 2025, has also added uncertainty for businesses and investors.
Confidence and governance take center stage
Beyond numbers, the study delivers a strong message on governance. As the authors emphasize, economic momentum cannot be sustained without trust in institutions.
“The immediate policy priority must be to penalize corrupt officials and their accomplices swiftly, visibly, and without exception,” the authors stressed.
They warn that delays in reform come at a real cost: “Delays in governance reforms translate to lost competitiveness, weaker investor sentiment, and missed opportunities for long-term development.”
The road to 2026 and beyond
Looking ahead, the study projects moderate growth in 2025 to 2026, supported by easing inflation and domestic demand.
However, achieving UMIC status and sustaining inclusive growth will require more than favorable macroeconomic indicators.
“A stronger, more predictable governance environment is not merely desirable; it is indispensable for an economy aiming to transition into a high productivity, innovation-driven, and inclusive society,” the authors stressed.
Growth is possible, but confidence—earned through credible institutions and consistent reforms—will determine whether the Philippines can truly move forward.
Read the full study at .—MAEC
