A new analysis from the state-run think tank Philippine Institute for Development Studies (PIDS) projects that the national economy will maintain a path of moderate expansion through 2026. However, this progress faces significant tests from both international and local challenges as the country approaches a critical economic milestone.
Growth Trajectory and Persistent Headwinds
According to the PIDS discussion paper, the country's Gross Domestic Product (GDP) is expected to grow by five percent in 2025, with a slight acceleration to 5.3 percent in 2026. This growth will be primarily fueled by robust domestic demand, continued infrastructure spending, and the steady expansion of the services sector.
The authors—senior research fellow John Paolo R. Rivera, former research specialist Mark Gerald C. Ruiz, and research specialist Ramona Maria L. Miral—noted that while this outlook demonstrates resilience, it remains below official government targets. The economy expanded by 5.7 percent in 2024, driven by services and industry, yet it missed its goal for a second consecutive year. Growth further moderated to 5.4 percent in the first half of 2025.
"The Philippine economy continues to inch closer to upper-middle-income status, even as it navigates persistent internal and external headwinds," the researchers stated. The nation narrowly missed crossing the World Bank's income threshold in 2024.
Sectoral Performance and Inflation Relief
A key positive development has been the significant easing of inflationary pressures. Headline inflation averaged 3.2 percent in 2024, staying within the Bangko Sentral ng Pilipinas (BSP) target band. It decelerated further to just 1.7 percent by October 2025. This favorable trend allowed the central bank to start loosening monetary policy, reducing borrowing costs to stimulate economic activity.
On the production front, the services sector stood as the undisputed growth engine. It was buoyed by several key industries:
- Wholesale and retail trade
- Finance and insurance
- Tourism and construction-related activities
- The Business Process Outsourcing (BPO) industry, which is capitalizing on rising global demand for digital and AI-enabled services
In stark contrast, the agriculture, forestry, and fisheries sector contracted by 1.6 percent in 2024. Climate-induced disruptions and disease outbreaks were the main culprits. Although early 2025 showed tentative signs of recovery, the report emphasizes the sector's continued vulnerability to weather shocks and deep-seated structural problems.
Critical Risks and the Governance Imperative
The study outlines several substantial risks that could derail the growth momentum:
Labor Market: While unemployment fell below 3.8 percent in 2024, a declining labor force participation rate raises alarms about long-term workforce sustainability, partly due to overseas migration.
External Trade: The Philippines continues to run a wide trade deficit, heavily reliant on imports. This is partially offset by strong services exports. Risks loom from potential U.S. tariff hikes, supply-chain shifts under new regional trade deals, and ongoing geopolitical tensions.
Peso Volatility: The Philippine peso traded near P58 to P59 per US dollar in late 2025, adding a layer of uncertainty for businesses and investors.
Beyond these macroeconomic factors, the authors delivered a pointed message on governance. They argued that sustaining growth and finally achieving upper-middle-income status hinges on institutional credibility and decisive action against corruption.
"The immediate policy priority must be to penalize corrupt officials and their accomplices swiftly, visibly and without exception," they warned, stating that delays in reforms could severely weaken investor confidence and the country's competitiveness.
The study concludes that moderate growth is attainable through 2026, supported by manageable inflation and solid domestic demand. However, translating this growth into meaningful, inclusive progress that lifts the nation to a new income bracket will require unwavering commitment to consistent reforms and stronger institutions.
