PHL may grow below target until 2027

By Aubrey Rose A. Inosante, Reporter

THE PHILIPPINE ECONOMY is expected to miss the government’s growth targets this year until 2027, the Organisation for Economic Co-operation and Development (OECD) said.

In its latest Economic Outlook on Tuesday, the OECD has slashed its Philippine gross domestic product (GDP) growth forecast to 4.7% for this year from 5.6% in its June report.

The OECD also trimmed its GDP growth forecast to 5.1% for 2026 from 6% previously. It sees the economy growing by 5.8% in 2027.

These projections are below the government’s 5.5-6.5% growth goal for this year and the 6-7% target for 2026 to 2028.

“The corruption scandal has actually already weighed on economic activity in the third quarter of 2025. The channel through which it has weighed on activity is public construction, which has collapsed in the third quarter,” OECD economist Cyrille Schwellnus said at a separate briefing on Wednesday.

Philippine GDP grew by a weaker-than-expected 4% in the third quarter, bringing nine-month growth to 5%. This, as household final consumption expenditure and government spending slowed amid the corruption mess.

“This lower growth will bring down annual growth for 2025, but also annual growth for 2026,” he added.

Mr. Schwellnus noted that the growth projections assume that the corruption scandal will be resolved relatively quickly, along with more transparent public procurement. But it is uncertain how quickly public investment and investor confidence will rebound, he added.

Based on the OECD’s latest Economic Outlook, the Philippines will be the fourth fastest-growing economy in Southeast Asia this year, after Vietnam (8.2%), Malaysia (5%) and Indonesia (5%).

For 2026, the Philippines is seen to post the second-fastest growth in Southeast Asia, after Vietnam’s 6.2%. The Philippines and Vietnam are expected to post the fastest growth in the region in 2027 at 5.8%.

In a report, the OECD noted that the Philippine economy will gradually return to its growth path “but risks are tilted to the downside.”

“Private consumption is supported by a strong labor market and contained inflation, but investment has weakened as the execution of public infrastructure projects has slowed on the back of a corruption scandal linked to public works,” the OECD said.

The OECD said private spending, which accounts for more than 70% of the economy, is expected to stay robust as job gains bolster real incomes amid easing inflation.

Household final consumption expenditure is projected to expand by 4.7% this year, slowing from 4.9% in 2024. It is expected to pick up to 5.1% in 2026 and 5.9% in 2027.

“A more persistent-than-expected weakness in public investment related to tighter corruption controls and weaker investor confidence could weigh on domestic demand over 2026,” the OECD said.

Investment may stage a modest rebound in the coming quarters as borrowing costs ease and public investment restarts, it said. However, slower export momentum amid global uncertainties and softening external demand may temper gains.

“On the upside, the recent liberalization of foreign investment rules could help offset export headwinds by attracting higher capital inflows,” it said.

Mr. Schwellnus said the OECD has identified critical areas the Philippines can focus on to boost growth, such as reducing non-wage labor costs and updating employment regulations.

“(There are) barriers to competition in electricity, telecommunications, and transport. These could be further reduced, which would lower costs for businesses and consumers, while encouraging private sector investment,” he said.

INFLATION
At the same time, the OECD sees headline inflation averaging 1.6% this year, with the Bangko Sentral ng Pilipinas (BSP) expected to lower its policy rate to 4.25% in 2026.

“Inflation will remain contained in the near term amid weak domestic demand but will gradually return to the midpoint of the central bank’s target range as food and energy price effects fade, the recent depreciation of the currency is transmitted to domestic prices, and growth gradually recovers,” it said.

The forecast is slightly below the BSP’s 1.7% projection for 2025 and the 10-month average.

With below-target inflation, subdued demand-side pressures and slower growth, the OECD said the central bank is expected to continue easing, with policy rates seen at 4.25% in 2026.

BSP Governor Eli M. Remolona, Jr. said on Wednesday the weaker growth outlook gives the Monetary Board room for another rate cut at its Dec. 11 policy meeting.

The central bank has reduced key borrowing costs by 175 bps since it began its easing cycle in August 2024, bringing the policy rate to a three-year low of 4.75%.

In addition, the OECD said the fiscal policy will likely be “moderately restrictive” through 2027 as the government aims to reduce the budget deficit.

The government aims to cap the deficit at P1.56 trillion this year, equivalent to 5.5% of the GDP, and further narrow the gap to P1.55 trillion or 4.3% in 2028.

“The pace of this consolidation could be stepped up in 2026 to put public debt on a firmer downward path. The overall macroeconomic policy mix is broadly appropriate given that fiscal policy turns moderately more restrictive in 2026,” the OECD said.