The Philippine economy is expected to post subdued growth over the next two years as global uncertainties—particularly the ongoing Middle East conflict—continue to weigh on investment, inflation, and consumer sentiment, according to the latest Asian Development Bank (ADB) outlook.
Gross domestic product (GDP) growth slowed to 4.4 percent in 2025 from 5.7 percent in 2024, dragged mainly by a contraction in investment following tighter oversight of public infrastructure projects and budget controls. Growth is projected to remain at 4.4 percent in 2026 before recovering to 5.5 percent in 2027.
Investment slump drags growth
Public infrastructure spending sharply declined in the second half of 2025 due to investigations into project anomalies, leading to a 2.1 percent contraction in overall investment—reversing the previous year’s 7.7 percent expansion.
While private construction remained resilient, it was not enough to offset the drop in public spending. Industry growth slowed significantly to 1.5 percent from 5.6 percent, with construction dipping slightly and manufacturing moderating.
Services continued to anchor the economy, expanding 5.9 percent and accounting for about 60 percent of GDP and employment, driven by trade, finance, and business services.
Consumption holds, but sentiment weakens
Household spending remained the primary growth driver, rising 4.6 percent in 2025, supported by remittances, which grew 3.3 percent to $35.6 billion, equivalent to 7.3 percent of GDP.
However, both investor and consumer sentiment weakened amid global policy volatility and domestic disruptions, including weather-related shocks.
Labor conditions also softened, with unemployment rising to 4.2 percent in 2025 and further to 5.8 percent by January 2026, reflecting job losses in agriculture.
Inflation seen rising again
After easing to a low 1.7 percent in 2025, inflation is projected to climb to four percent in 2026 due to higher global commodity prices, particularly oil, before settling at 3.5 percent in 2027.
The Philippines’ heavy reliance on imported fuel exposes it to external shocks, with rising oil prices already pushing up transport and production costs.
To mitigate inflationary pressures, the government has introduced measures such as a tiered rice tariff system and emergency powers to suspend fuel excise taxes when global prices spike.
External position weakens despite export gains
The current account deficit narrowed to 3.3 percent of GDP in 2025 from four percent previously, as exports—led by electronics—outpaced imports.
However, capital inflows weakened amid global uncertainty, pushing the balance of payments into a deficit. The peso depreciated to beyond P60 per dollar in early 2026, while external debt edged up to 30.3 percent of GDP.
Despite this, gross international reserves remained adequate at $113.2 billion, covering 7.5 months of imports—well above the three-month safety benchmark.
Business outlook cautious
Business activity indicators show mixed signals. Manufacturing remained in expansion mode, with a purchasing managers’ index (PMI) of 54.6 in February 2026, supported by strong demand for electronics and capital goods imports.
However, the services PMI slipped below the expansion threshold, reflecting softer tourism and rising transport costs linked to geopolitical tensions.
The ADB noted that uncertainty tied to the Middle East conflict is dampening investor confidence and could further delay capital spending decisions.
Policy support, reforms to cushion slowdown
The government has rolled out fiscal and structural measures to support growth, including a higher 2026 budget, infrastructure pipeline expansion, and reforms allowing full foreign ownership in key sectors such as telecommunications and renewable energy.
Public-private partnerships are also being ramped up, with 248 projects in the pipeline as of March 2026, aimed at narrowing infrastructure gaps.
At the same time, authorities declared a national energy emergency in March 2026 to secure supply and cushion the impact of rising global prices through targeted subsidies and social assistance.
Risks tilted to the downside
The ADB warned that downside risks remain elevated, particularly if the Middle East conflict persists, which could disrupt remittances, tighten financial conditions, and further weaken domestic demand.
Domestically, prolonged delays in infrastructure spending and severe weather events could add further pressure on growth.
“Growth will remain subdued amid heightened risks,” the report said, highlighting the need for sustained reforms and improved public investment execution to restore momentum. / KOC