THE Philippine economy is expected to sustain moderate growth through 2026, though rising global and domestic risks could test its ability to maintain momentum as it edges closer to upper-middle-income status, a new study showed.
In a discussion paper, the Philippine Institute for Development Studies (PIDS) projected gross domestic product growth at five percent in 2025, rising to 5.3 percent in 2026, supported by domestic demand, infrastructure spending and continued expansion in services.
The authors, PIDS senior research fellow John Paolo R. Rivera, former research specialist Mark Gerald C. Ruiz, and research specialist Ramona Maria L. Miral, said the outlook points to resilience but warned that growth has remained below government targets, underscoring the need for stronger risk management and policy credibility.
The economy grew 5.7 percent in 2024, driven mainly by services and industry, but missed official targets for a second straight year. Growth moderated to 5.4 percent in the first half of 2025 amid softer investment and persistent global trade uncertainty.
“The Philippine economy continues to inch closer to upper-middle-income status, even as it navigates persistent internal and external headwinds,” the authors said, noting the country narrowly missed the income threshold in 2024.
Inflation relief
One bright spot was inflation. Headline inflation averaged 3.2 percent in 2024, within the Bangko Sentral ng Pilipinas target range, before easing further to 1.7 percent by October 2025. The slowdown allowed the central bank to begin easing monetary policy, lowering borrowing costs.
Still, the study cautioned that price stability remains vulnerable to food supply shocks, exchange-rate swings and global commodity prices, keeping households cautious after years of elevated costs.
Services lead, agriculture lags
Services remained the main growth driver, buoyed by wholesale and retail trade, finance, tourism, construction-related activities and the business process outsourcing industry, which continues to benefit from demand for digital and AI-enabled services.
By contrast, agriculture, forestry and fisheries contracted 1.6 percent in 2024 due to climate-related disruptions and disease outbreaks. While the sector showed signs of recovery in early 2025, it remains highly exposed to weather shocks and structural weaknesses, the report said.
Jobs, trade and peso risks
Labor market conditions improved, with unemployment falling below 3.8 percent in 2024, but labor force participation declined, raising concerns about long-term workforce sustainability as more Filipinos shift overseas or exit the labor market.
Externally, the Philippines continues to run a wide trade deficit due to heavy import dependence, partly offset by services exports. The study flagged risks from potential U.S. tariff escalation, supply-chain realignments under regional trade agreements and geopolitical tensions.
Peso volatility has also added uncertainty, with the currency trading near P58 to P59 per dollar in late 2025.
Governance in focus
Beyond macroeconomic indicators, the authors stressed that sustaining growth will depend heavily on governance and institutional credibility.
“The immediate policy priority must be to penalize corrupt officials and their accomplices swiftly, visibly and without exception,” they said, warning that delays in reforms could weaken investor confidence and competitiveness.
Looking ahead, the study said moderate growth is achievable through 2026 as inflation eases and domestic demand holds up, but reaching upper-middle-income status and ensuring inclusive growth will require consistent reforms and stronger institutions.
“Confidence — earned through credible institutions and predictable policies — will determine whether the Philippines can truly move forward,” the authors said. / KOC