The Philippine economy is forecast to maintain its growth trajectory through 2026, but emerging global and domestic challenges may hinder its transition to upper-middle-income status, according to a study by the Philippine Institute for Development Studies.
The state-funded think tank projects the economy will grow 5 percent in 2025 and 5.3 percent in 2026. This momentum is expected to be led by domestic demand, infrastructure spending and continued expansion in the services sector. While these figures indicate resilience, the growth forecasts remain below the government’s official targets.
The economy grew 5.7 percent in 2024, supported by the services and industry sectors. However, the country narrowly missed the threshold for upper-middle-income country status that year, highlighting the vulnerability of its economic transition.
In the first half of 2025, growth moderated to 5.4 percent due to softer investment and global trade uncertainty.
One significant development noted in the report is the easing of inflation. Headline inflation averaged 3.2 percent in 2024 and dropped further to 1.7 percent by October 2025, falling within the 2 percent to 4 percent target range of the Bangko Sentral ng Pilipinas.
This decline allowed the BSP to begin easing monetary policy and lowering borrowing costs, providing households with relief from years of high prices.
The services sector remains the primary engine of the economy, led by tourism, trade and the business process outsourcing industry.
The agriculture sector contracted 1.6 percent in 2024 due to climate-related disruptions and disease. Although agriculture showed signs of recovery in early 2025, PIDS senior research fellow John Paolo Rivera and his co-authors warned that the sector remains structurally weak.
Labor market conditions showed improvement as unemployment fell below 3.8 percent in 2024. However, the study raised concerns over a decline in labor force participation, suggesting that more Filipinos may be seeking work abroad or leaving the workforce for education and caregiving roles.
External risks continue to weigh on the outlook, including a persistent trade deficit and the volatility of the local currency. The peso hovered near P58 to P59 per dollar in late 2025, creating uncertainty for investors. The report also flagged potential disruptions from U.S. tariff escalations and geopolitical tensions.
The authors said sustaining growth requires more than favorable macroeconomic data, calling for urgent governance reforms and an end to corruption.
PIDIS senior research fellow John Paolo Rivera, former research specialist Mark Gerald Ruiz and research specialist Ramona Maria Miral said a predictable governance environment is indispensable for transitioning to a high-productivity society.
