Philippine Economy Poised for 5% Growth in 2026, According to New Study
A recent economic forecast projects that the Philippine economy could achieve a growth rate of five percent as early as the first quarter of 2026. This optimistic outlook is attributed to the early release of the national budget to local government units and the expectation of a stable inflation environment, which together are anticipated to provide significant leeway for domestic expansion.
Key Factors Driving Economic Growth
The January 2026 issue of The Market Call, a capital markets research publication by the Business Economics Club and the University of Asia and the Pacific, highlights that these developments are likely to push the gross domestic product growth beyond the five percent mark for both the first quarter and the full year. This projection aligns with the government's target range of five to six percent growth for the year, offering a positive signal for the nation's economic trajectory.
Context of Recent Economic Performance
This forecast comes in the wake of recent data from the Philippine Statistics Authority, which reported a deceleration in GDP growth to three percent in the last quarter of 2025, down from 3.9 percent in the previous quarter. For the full year of 2025, growth stood at 4.4 percent, which was slower than the 5.7 percent recorded in the prior quarter and fell short of the government's downwardly revised target of 4.8 to five percent. The new study suggests a potential rebound, emphasizing the role of timely fiscal measures in stimulating economic activity.
Budget Allocation and Policy Support
In a move to bolster local governance and service delivery, the Department of Budget and Management has released a budget allocation of P1.19 trillion to local government units under the National Tax Allotment. This action follows President Ferdinand Marcos Jr.'s directive to ensure uninterrupted basic services, adhering to constitutional and legal provisions that mandate such funding as the primary source for local programs and projects. Historically, this funding was distributed on a staggered basis, but the early release is expected to enhance efficiency and impact.
External Sector and Inflation Outlook
The report notes that while economists were initially caught off guard by positive developments in the last quarter of 2025, such as low inflation and improvements in business and employment sectors, a favorable outcome in the current quarter is deemed achievable. This optimism is partly due to the resilience of the external sector, with Philippine exports of goods expanding by 14.1 percent despite overseas challenges like U.S. trade policies.
In terms of inflation, the study projects that price increases will average 1.4 percent in the first quarter of 2026, remaining below the government's target range of two to four percent. Additionally, the Bangko Sentral ng Pilipinas has indicated a potential 25 basis points reduction in interest rates, which is anticipated to provide a boost not only to financial markets but also to business activities and private construction sectors.
Implications for the Future
Overall, this forecast underscores the importance of coordinated fiscal and monetary policies in driving economic growth. By leveraging early budget disbursements and maintaining a manageable inflation rate, the Philippines aims to overcome recent slowdowns and achieve robust expansion in the coming year, positioning itself for sustained development and improved economic stability.
