The Philippine economy slowed in 2025 as domestic shocks, weaker investment, and soft global demand weighed on growth. However, a modest rebound is projected for 2026–2027, supported by resilient consumption and easing inflation, according to the World Bank’s latest Philippines Economic Update (PEU).
The report emphasizes that sustaining growth in the years ahead will require stronger implementation of public investments, credible fiscal consolidation, and structural reforms aimed at boosting competitiveness in the tradables sector—including manufacturing, agriculture, information technology, and tourism—as well as leveraging high-potential urban corridors.
“The Philippines can leverage its strong economic foundations to implement bolder reforms that unlock faster, more inclusive growth,” said Zafer Mustafaoğlu, World Bank Division Director for the Philippines, Malaysia, and Brunei. “Removing barriers that limit investment and productivity and strengthening competitiveness can create more and better-paying jobs, expand opportunities, and reinforce economic resilience.”
Growth is forecast to slow to 5.1 percent in 2025, slightly below earlier projections, before improving to 5.3 percent in 2026 and 5.4 percent in 2027.
The 2025 deceleration reflects lower domestic investment, weak business confidence, a sharp drop in foreign direct investment, and multiple domestic shocks—from typhoon- and flood-related disruptions to governance issues that have delayed public spending. Services exports have also softened due to slower business services growth and fewer tourist arrivals.
Recovery seen in two years
A recovery is expected over the next two years, driven mainly by solid domestic demand. Private consumption is projected to firm up as inflation stays low, employment remains strong, and monetary easing reduces borrowing costs for households and firms. Investment is also expected to pick up as infrastructure projects regain momentum and recent liberalization reforms in telecommunications, transport, logistics, and renewable energy begin improving the business environment.
Reviving the tradables sector will be key to strengthening the recovery. In recent years, Philippine growth has leaned heavily toward “non-tradables” such as construction, domestic services, and retail. Complex regulations have constrained manufacturing job creation, reduced the number of exporting firms, and caused exports to lag behind regional peers.
Enhancing competition in logistics and energy, accelerating permit digitization, streamlining customs procedures, and improving investment facilitation would lower business costs, attract private investment, and restore dynamism in the tradables sector—bolstering the country’s growth outlook.
The PEU also highlights the importance of investing in and effectively managing emerging urban corridors as the Philippines advances toward upper-middle-income status. More than 60 percent of urban local government units (LGUs) across Luzon, Visayas, and Mindanao sit within these high-potential corridors, where wage jobs and productive firms are concentrated. Realizing their full potential will require better connectivity, targeted investments, and supportive policies.
“For long-term, sustained growth, the Philippines needs to ensure that low-income and middle-income regions continue to grow faster than the National Capital Region, as they have over the past decade,” said Jaffar Al-Rikabi, World Bank Senior Economist. “To do that, high-potential urban areas—urban corridors—must be harnessed as engines of job creation and productivity that generate spillover benefits across the country.”
The report adds that the Philippines must strengthen the overall framework for local service delivery and enhance the capacity of LGUs, which manage roughly one-quarter of public spending. Together, these reforms can create a virtuous cycle of investment, productivity, and local revenue growth—accelerating nationwide development and job creation.
PNA PHOTO