Philippine economic growth forecast to stay below target until 2027

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Title Philippine Economic Growth Forecast Staying Below Target until 2027

As we approach the final quarter of 2025, it's essential to assess the current state of the Philippine economy and its growth prospects. According to ANZ Research, economic growth is expected to remain below potential in the near term due to factors such as weaker external demand and consumption constraints.

Key Findings

Gross Domestic Product (GDP) growth is forecasted at 5.4% for 2025, a slowdown from last year's 5.7% growth rate and below the government's target of 5.4-6.5%.
The growth pace is expected to moderate further to 5.2% in 2026 as global demand softens.
A rebound to 5.6% is forecasted for 2027, still below the 6.0-7.0% goal for 2026-2028.

Inflation and Monetary Conditions

Inflation has eased significantly this year, driven by declining rice and crude oil prices. However, this easing has not yet translated into a meaningful recovery in household consumption.
Consumer price growth is expected to remain within the 2.0-4.0% target until 2027. A below-target inflation rate of 1.8% is predicted for 2025, accelerating to 3.0% in 2026 and reaching 3.2% in 2027.
Monetary conditions remain relatively tight, with the real policy rate staying elevated.

Banking Sector

The Bangko Sentral ng Pilipinas (BSP) is expected to lower the policy rate by another 25 basis points in Q4 2025, bringing the terminal rate to 4.75%.
The lending-policy rate spread narrowed during the previous hiking cycle, indicating that banks may be reluctant to adjust lending rates downward in line with policy rate cuts.

Currency and Balance of Payments

The peso is described as an underperformer in the region, despite the Fed's resumed rate-cutting cycle.
The country's balance of payments (BOP) position has swung from a $1.59-billion surplus recorded a year earlier to a deficit of $5.4 billion as of end-August.
ANZ Research expects moderate gains for the peso over the medium term, constrained by a wide goods trade deficit.

Conclusion*

The Philippine economy is likely to experience slower growth in the near term due to various factors, including weaker external demand and consumption constraints. While inflation has eased significantly this year, it has not yet led to a meaningful recovery in household consumption. The BSP's monetary policy decisions will be crucial in navigating these challenges.

To adapt to changing global conditions and achieve its growth potential, policymakers should focus on strategies to boost consumption and investment, such as increasing government spending and implementing policies to support small and medium-sized enterprises (SMEs). The BSP should continue to monitor inflationary pressures and adjust monetary policy accordingly. The government should prioritize measures to address the anomaly of subdued wage growth despite falling unemployment levels.

By understanding these key factors and taking proactive steps, the Philippine economy can adapt to changing global conditions and achieve its growth potential.

Edward Lance Arellano Lorilla

CEO / Co-Founder

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