The Philippines is expected to continue expanding through 2026, but at a pace that remains below official targets, highlighting a recovery that is steady yet weaker than hoped for, according to a new study by the Philippine Institute for Development Studies (PIDS).
PIDS projects economic growth of around 5 percent in 2025, rising slightly to 5.3 percent in 2026. While this suggests the economy is still moving forward, the 2025 forecast is lower than the Bangko Sentral ng Pilipinas’ (BSP) projected growth of 4.6 percent, underscoring a gap between policy expectations and likely economic performance.
Growth is expected to be supported mainly by domestic demand, public infrastructure spending, and the continued expansion of the services sector, including trade, finance, tourism, and business process outsourcing. However, PIDS noted that actual growth has repeatedly fallen short of government targets, pointing to lingering weaknesses despite easing inflation and improving financial conditions.
The economy grew by 5.7 percent in 2024, driven by services and industry, but still missed the government’s target for the second consecutive year. Growth slowed to 5.4 percent in the first half of 2025, reflecting weaker investment and uncertainty in global trade. The country also narrowly failed to achieve upper-middle-income status in 2024, highlighting how vulnerable the recovery remains.
Inflation has cooled, offering relief to households. Average inflation eased to 3.2 percent in 2024 and slowed further to 1.7 percent by October 2025, giving the central bank room to start cutting interest rates. Still, PIDS warned that inflation could flare up again due to food supply disruptions, peso volatility, and changes in global commodity prices.
Services continue to drive growth, but agriculture remains a weak spot due to climate-related risks. Employment has improved and unemployment has declined, yet lower labor force participation and ongoing global risks—such as trade disruptions and exchange rate swings—continue to weigh on the outlook.
PIDS emphasized that the difference between projected growth and official targets matters because slower growth means fewer jobs, weaker income gains, and delays in reaching upper-middle-income status. Sustaining stronger and more inclusive growth, the study said, will require not only favorable economic conditions but also improved governance and renewed investor confidence.
