The Philippines is expected to remain resilient over the next two years, fueled by strong domestic consumption, infrastructure investment, and an expanding services sector, according to a new report from the Philippine Institute for Development Studies (PIDS). However, the USD437-billion southeast Asian economy will need to effectively navigate a range of headwinds—including inflation, global uncertainties, and climate change—to sustain its growth trajectory.
In the paper “Macroeconomic Prospects of the Philippines in 2024–2025,” the PIDS said the country’s economic recovery is on track. The Philippine economy grew by a robust 5.6 percent in 2023, making it one of Southeast Asia’s top performers. The report attributes this growth to strong domestic demand, overseas remittances, the thriving business process outsourcing (BPO) sector, a rebound in tourism, favorable employment conditions, and continued public investment in infrastructure.
With continued momentum, the PIDS said the Philippines is poised to achieve upper middle-income status by 2025—a significant milestone in the nation’s economic development. For 2024, output growth measured as the gross domestic product (GDP) is projected to range from 5.8 percent and 6 percent, keeping the country on course to meet the government’s target of 6 percent to 7 percent annual growth. This will once again position the Philippines as one of the fastest-growing economies in Southeast Asia.
A key driver of growth remains the government’s sustained spending on infrastructure development, although the report warns that recent natural disasters—such as typhoons and droughts—could temper the full potential of this expansion. In 2025, GDP growth is expected to rise to 6.1 percent, supported by easing inflation, lower policy rates, increased household consumption, and a steady flow of remittances.
“The expansion is also expected to be driven by recovering merchandise exports, especially electronic products, and the continued resilience of services exports like BPO and tourism,” said PIDS authors John Paolo Rivera, Mark Gerald Ruiz, and Ramona Maria Miral.
Despite the optimistic outlook, the report highlights several risks that could disrupt the country’s growth. On the global front, geopolitical tensions, weakening economic conditions in key trading partners, and the overall deterioration of external conditions pose significant challenges. Domestically, issues such as unclear fiscal and monetary policies, high borrowing costs, labor market concerns, and the looming threat of natural calamities could hinder the Philippines’ growth prospects.
As the global economy remains volatile, domestic consumer sentiment has also turned more cautious. According to the report, the country’s consumer confidence index turned negative in Q2 2024, as rising prices, diminished purchasing power, and concerns over job availability weighed heavily on public sentiment. Similarly, business confidence weakened in the same period, with firms citing reduced demand, geopolitical disruptions, and inflationary pressures as primary concerns.
The report also points to high borrowing costs as a significant constraint on both household consumption and government spending. These challenges highlight the need for targeted fiscal measures to stimulate growth, particularly in the short term.
To address these risks and sustain long-term growth, the PIDS recommends a multi-phase strategy. In the short term, the focus should be on stimulating investment through targeted fiscal measures, digitalization, and ongoing infrastructure projects. In the medium term, regional development, workforce upskilling, and creating a more favorable investment climate will be critical. Over the long term, transitioning to advanced industries, fostering innovation, and pursuing green development will ensure that the Philippines remains competitive globally while promoting sustainable, inclusive growth.
While the road ahead is not without its challenges, the PIDS report underscores the Philippines’ strong growth potential, provided it can navigate the complex landscape of domestic and global risks. The PIDS said the next two years will be crucial as the country works toward achieving its economic goals and securing a prosperous future.
