Philippines

The Philippines has experienced strong GDP growth over the past decades, averaging +4.5% in the 2000s and +6.4% in the 2010s. Following the Covid-19 pandemic, growth returned to more typical rates in 2023 (+5.5%) and 2024 (+5.7%), though still slightly below the previous decade’s average owing to external challenges, elevated inflation and tight monetary policy. As inflation subsided and monetary easing, initiated in the second half of 2024, continued, private consumption began to recover. Together with a pick-up in investment, domestic demand provided a tailwind to growth in 2025. However, the external environment remains negative due to ongoing geopolitical tensions and trade disruptions, creating significant headwinds to exports despite the early-2025 frontloading. GDP growth is thus estimated to have softened to +4.4% in 2025. Looking ahead, external pressures are likely to persist, although resilient domestic demand should continue to support overall activity, with growth projected to remain around +5.5% in 2026–2027. 

After peaking at 6% in 2023 (a 15-year high), inflation declined to 3.2% in 2024 and further eased to 1.7% in 2025, in the context of the Bangko Sentral ng Pilipinas’ (BSP) monetary tightening cycle, which brought the policy rate to a peak of 6.5% at the end of 2023. In mid-2024, the BSP began its monetary-easing phase, implementing cumulative cuts of -200bps and bringing the policy rate to 4.5% by the end of 2025. With inflation expected to remain within the BSP’s 2-4% target range, at 2.3% in 2026 and 2.7% in 2027, we forecast only one additional -25bps rate cut in 2026.

Fiscal consolidation has been slow since the pandemic. From a pre-pandemic average of -0.5% of GDP, the fiscal balance deteriorated to -6.2% in 2021 and this deficit has been very slowly narrowing since – still at an estimated -3.6 % in 2025 and forecast at -3.1% in 2026. While the government has ambitious plans to bring the deficit to -3% of GDP in 2028, in part thanks to improving and expanding tax collection, high interest payments on debt and continued support through subsidies and cash assistance for low-income households will likely stall the progress.

With a lower-than-average performance, the business environment in the Philippines broadly remains weak. The economy was ranked 82 out of 184 economies in the Heritage Foundation’s Index of Economic Freedom survey 2025, roughly stable from the 88th position based on the survey conducted in 2024. The Philippines’ ranking was primarily driven by weaknesses in the rule of law (property rights, judicial effectiveness and government integrity) and its fiscal health. However, on the positive side, indicators for government spending, tax burden and trade freedom performed well. Meanwhile, the World Bank’s Worldwide Governance Indicators show that issues related to the rule of law and corruption warrant serious attention, with both indicators having deteriorated since the previous year. Lastly, our proprietary Environmental Sustainability Index 2025 puts the Philippines at rank 130 out of 210 economies, with the energy use per GDP, renewable electricity output and the recycling rate remaining weak spots.