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Emerging risks to inflation may limit the Philippine central bank’s ability to ease further in 2026 despite an expected economic slowdown, analysts said.

John Paolo R. Rivera, a senior research fellow at the Philippine Institute for Development Studies, said another 25-basis-point (bp) cut signaled by the central bank for 2026 would not suffice to spur the economy.

“A final 25-bp rate cut would help at the margin, but it may not be enough on its own to materially lift growth if fourth-quarter (growth) comes in around 3.8%,” he told BusinessWorld in a Viber message.

Last week, Bangko Sentral ng Pilipinas (BSP) Governor Eli M. Remolona, Jr. said gross domestic product (GDP) growth in the fourth quarter might settle at 3.8%, easing from 4% in the third quarter.

If realized, it would be the slowest growth rate since 3% in the third quarter of 2011 and bring full-year expansion to 4.7%, under the government’s 5.5-6.5% target.   

However, Mr. Rivera said the central bank’s current easing cycle will likely end soon as food prices and peso’s weakness pose inflationary risks.

“As for easing space, the BSP likely has limited room left,” he said. “With growth projected to stay below target but inflation risks still present (from food prices and the (peso’s) depreciation), BSP must balance support for growth with price and financial stability.”

ANZ Research Chief Economist for Southeast Asia and India Sanjay Mathur and economist Arindam Chakraborty noted that the peso’s recent performance against the dollar has not affected inflation, amplifying calls for another 25-bp cut in February. 

“In our view, the subdued growth and inflation prospects suggest there is room for further rate cuts,” they said in a note released late on Thursday. “We anticipate another 25-bp rate cut in Q1 2026, bringing the terminal policy rate to 4.25%.”

The peso has hit the P59-per-dollar several times since November, even slumping to a fresh low of P59.22 against the greenback on Dec. 9.

The Monetary Board last week lowered key borrowing costs for a fifth straight meeting by 25 bps to an over three-year low of 4.5%, citing subdued inflation and slowing growth. It has so far delivered a total of 200 bps in cuts since it began its easing cycle in August 2024.

Mr. Remolona earlier said they might cap off their easing cycle with a final 25-bp rate cut in 2026 if economic figures turn out worse than they anticipated.

ING Chief Economist and Regional Head of Research for Asia‑Pacific Deepali Bhargava said benign inflation could allow the BSP to ease further but warned that real interest rates may climb if inflation rates fall below expectations.

“Inflation should remain within central bank targets in 2026, allowing rate-cutting cycles to continue in… the Philippines… and supporting a generally easier monetary stance across the region,” he said in a statement.

“However, ING cautions that if inflation were to undershoot expectations, real interest rates could rise again, creating a more challenging environment for both business investment and consumer demand.”

Headline inflation slowed to 1.5% in November from 1.7% in the previous month and 2.5% in the same month last year, bringing inflation to an average of 1.6% in the 11-month period.    

ING expects inflation to return within the central bank’s 2-4% target next year at 3%, a tad slower than the 3.2% revised forecast of the BSP.

Citi Research said the central bank might ease more in 2026 as the rise of jobless Filipinos could pull down consumption and inflation.

“With a cooling job market possibly dragging down consumption and inflation, we still expect a final 25-bp cut in (February 2026) to 4.25%, with still some (albeit reduced) risk of a further 25-bp cut,” it said in an e-mailed note on Friday.

The country’s unemployment rate climbed to a three-month high of 5% in October from 3.8% in September and 3.9% in the same month last year.

Governance

Meanwhile, analysts said the economy would need fiscal action and governance reforms on top of monetary policy easing to fully recover.

“Gradual cuts could still surprise, but don’t rely on rates alone,” Jonathan L. Ravelas, a senior adviser at Reyes Tacandong & Co., told BusinessWorld via Viber. “Real boost will come if (the) government speeds up action on governance, fiscal discipline, and sector reforms. Without that, impact stays limited amid political noise and corruption concerns.”

Reinielle Matt M. Erece, an economist at Oikonomia Advisory and Research, Inc., also noted that the stock market’s recent recovery is also not enough to offset slower government spending and waning investor confidence.

“Despite recovery in the equities market and the recent short rallies observed, these factors won’t be enough to offset the decline in government spending and investor sentiment,” he said in a Viber message. “A large part of GDP is government spending, hence declines in this sector will have a large impact on growth indicators.”

On Friday, the Philippine Stock Exchange index climbed by 0.78% or 46.72 points to end at 6,036.72. Week on week, it rose by 87.5 points from its 5,949.22 close on Dec. 5.

“The BSP can release money to the financial system, cut interest rates, but if the fiscal sector is tight, economic growth can only go so far,” he added.

President Ferdinand R. Marcos, Jr. earlier vowed to boost government spending in the fourth quarter in a bid to support economic growth. — Katherine K. Chan

The Asian Development Bank (ADB) has approved a USD 500-million (around PHP 29.56-billion) policy-based loan to support the development of the Philippines’ blue economy and improve the resilience of coastal communities.

The financing for the Marine Ecosystems for Blue Economy Development Program Subprogram 1 was approved on Thursday, the multilateral lender said in a statement.

This loan seeks to “strengthen the productivity and diversity of the country’s ocean-based economy, and improve the health and adaptability of coastal areas and communities,” the ADB said.

The program also aims to improve the plastic and solid waste management value chain to ensure long-term ecological and economic resilience in the Philippines.

“More than half of the Philippine population is dependent on the country’s oceans and rich marine biodiversity for food and livelihoods, with the blue economy having great potential to be central to attaining inclusive, resilient, and low-carbon development,” ADB Country Director for the Philippines Andrew Jeffries said.

“This is ADB’s first extensive cross-sector program focused on fostering national blue economy development in the region. We are committed to assisting our host country in achieving its climate resilience and low-carbon objectives,” he added.

In addition, Agence Française de Développement and Germany’s KfW Development Bank are set to provide cofinancing of up to EUR 200 million (about PHP 13.82 billion) each for Subprogram 1.

Last year, key blue economy sectors generated PHP 1.01 trillion (USD 17.17 billion) to the country’s economy, accounting for 3.8% of gross domestic product.

The blue economy includes fisheries, manufacturing of ocean-based products, tourism-related services, shipping, and offshore energy.

However, marine ecosystems in the Philippines are being affected by plastic and solid waste pollution, as well as extreme weather.

The Philippines, the world’s second-largest archipelagic nation, is battered by around 20 typhoons each year, with cyclones growing stronger in recent years.

The Marine Ecosystems for Blue Economy Development Program is aligned with the Philippine Development Plan 2023-2028 and supports the implementation of the National Adaptation Plan (NAP) 2023-2050.

The NAP is a joint initiative of the Climate Change Commission and the Department of Environment and Natural Resources to craft fit‑for‑purpose, science‑based adaptation strategies for sectors already facing and expected to face the impacts of climate change.

The program leverages ADB’s backing for climate action under the Climate Change Action Program, the bank’s first climate policy‑based loan in the region.

The loan complements the Philippines Flyway Project, which focuses on conserving and managing three priority wetlands, such as Candaba in Luzon, and Lake Mainit and Sibugay wetlands in Mindanao. This aims to bolster biodiversity, expand sustainable livelihoods, and improve climate resilience.

Earlier this year, ABD expressed its support for the proposed Blue Economy Act to improve marine-based livelihoods and ensure the long-term sustainability of the ocean economy.

The Senate passed Senate Bill No. 2450 in August last year, while the House approved its counterpart in December 2023. However, lawmakers failed to ratify a reconciled measure before the end of the 19th Congress.

Senators Lorna Regina “Loren” B. Legarda and Senator Risa N. Hontiveros-Baraquel have refiled the measure since the 20th Congress opened.

President Ferdinand R. Marcos, Jr. will support renewed efforts to pass the Blue Economy Act, Palace Press Officer Clarissa A. Castro said in July.

The ADB was the second-biggest development partner of the Philippines in 2024 with 59 loans and grants worth USD 11.05 billion. — Aubrey Rose A. Inosante

The Bangko Sentral ng Pilipinas (BSP) on Thursday lowered its benchmark policy rate anew by 25 basis points (bps) to 4.5% and signaled the current easing cycle is nearing its end.

The Monetary Board cut its target reverse repurchase rate for a fifth meeting in a row, bringing the rate to its lowest in over three years or since September 2022.

It likewise trimmed rates on the overnight deposit and lending facilities by 25 bps each to 4% and 5%, respectively.

This was in line with a BusinessWorld poll conducted last week where 17 out of 18 analysts anticipated a 25-bp cut at the Board’s last meeting of the year.

“Depending on the data, (the easing cycle) may have ended already. This may be the last cut,” BSP Governor Eli M. Remolona, Jr. said during a press briefing. “But depending on what else we see, we can still con-sider another cut.”

The central bank has so far lowered key borrowing costs by 200 bps since it began its easing cycle in August last year. It delivered a 25-bp cut at each of its meetings in April, June, August and October this year.

“On balance, the Monetary Board sees the monetary policy easing cycle nearing its end,” it said in a statement.

The Monetary Board’s decision to deliver a fifth straight cut came on the back of expectations that the economy will continue to weaken due to downbeat business sentiment amid the ongoing flood control controversy.

“The Monetary Board noted that the outlook for domestic economic growth has weakened further. Overall business sentiment has continued to decline on concerns about governance issues and lingering uncertainty over global trade policy,” it said.

“Nevertheless, domestic demand is expected to rebound slowly as the full impact of monetary policy easing works its way through the economy and as the pace and quality of public spending improves.”

The Philippine economy saw its weakest growth in over four years at 4%, a slump from the 5.5% seen in the second quarter and the 5.2% a year ago. This brought gross domestic product (GDP) growth to an average of 5% as of September, below the government’s 5.5-6.5% growth target.

“Sentiment remains weak due to the corruption issue as we can gauge from various sentiment indices,” Mr. Remolona said.

Business and investor sentiment has weakened as an ongoing probe revealed some government officials, lawmakers and private contractors received billions in kickbacks from anomalous infrastructure projects.

“The (rate) cut will revive economic activity a bit at a time when painful governance issues around infrastructure investments have weakened government spending, business confidence, and domestic demand,” Mr. Remolona said.

BSP Deputy Governor Zeno Ronald R. Abenoja said the GDP growth may settle around 5% by yearend.

The central bank chief said the economy might only start to rebound by the second half of 2026, noting that rate cuts usually take one to two years to take full effect.

“I was hoping we would recover by the first half,” Mr. Remolona said. “With the new data we’re getting, it looks like it’s more (going to) be in the second half rather than the first half.”

“And we’re hoping by 2027, we will be more or less back on target,” he added.

Still benign inflation likewise prompted the BSP to cut benchmark rates, after the consumer price index (CPI) eased to 1.5% in November on negative food inflation, slower than the 1.7% in October and 2.5% a year ago.

November marked the ninth consecutive month that inflation settled below the central bank’s 2%-4% target and brought the 11-month CPI to average 1.6%.

“The outlook for inflation continues to be benign, and inflation expectations remain firmly anchored,” the BSP said.

The central bank now expects inflation to end at 1.6% this year, lower than its earlier projection of 1.7%. However, it hiked its inflation forecasts for next year to 3.2% from 3.1% and for 2027 to 3% from 2.8%.

Mr. Remolona noted that supply shocks may push inflation faster, but negative investor sentiment could help it slow down.

“The high inflation scenario would be due to possible supply shocks such as power rate adjustments and increased rice tariffs. The low inflation scenario would be if investor sentiment remained negative for a protracted period,” he said.

The peso hitting the P59-per-dollar level has not impacted inflation “for now,” he said.

“It hasn’t weakened enough, and the oil prices have been benign,” the BSP chief said. “It’s when the two of them move in an adverse direction together that we begin to worry about.”

On Tuesday, the peso sank to its lowest ever at PHP 59.22 against the dollar after the greenback strengthened on expectations of a Fed cut.

However, it recovered on Thursday after closing at PHP 58.99 per dollar, up 22 centavos from its PHP 59.21 finish on Wednesday, Bankers Association of the Philippines data showed.

Further easing limited

While Thursday’s cut may be the end of the central bank’s easing cycle, Mr. Remolona still left the door open for another reduction if economic conditions turn “worse than they thought.”

“Any additional easing will likely be limited and will be guided by incoming data,” the BSP said in a statement.

“Looking ahead, the BSP will ensure that overall policy settings remain consistent with maintaining price stability conducive to sustainable economic growth.”

Oxford Economics Lead Economist Sunny Liu also said that this could be the last cut following the BSP’s cautious monetary policy signals, but dismal economic growth may still call for further easing.

“We expect no further rate cuts in 2026. That said, a sharper-than-expected slowdown in economic activity could still prompt additional easing,” she said in a note.

However, Pantheon Macroeconomics Chief Emerging Asia Economist Miguel Chanco said the Monetary Board may deliver another 25-bp cut at its first meeting next year.

“We continue to believe that the Board won’t stop easing until its benchmark interest rate falls to a terminal level of 4.25%; we now expect the last 25-bp move to come almost immediately at its first meeting in 2026,” he said in a note.

“It’s clear that the Board still sees space and a reason to potentially ease further in the foreseeable future,” he added.

Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said that benign inflation and the need to boost economic growth provide the BSP additional room to ease more next year.

He projects inflation to remain below target until March next year, before accelerating to between 2% and 3% by April until December. — Katherine K. Chan

The Asian Development Bank (ADB) slashed its growth forecasts for the Philippines for this year and 2026 but it is still expected to be the second-fastest growing economy in Southeast Asia.

In its December Asian Development Outlook (ADO), the multilateral lender slashed its Philippine gross domestic product (GDP) growth forecast to 5% from 5.6% in September.

For 2026, the ADB trimmed its Philippine growth forecast to 5.3% from 5.7% previously.

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

In its report released on Wednesday, the ADB said the lower growth prospects for the Philippines were “due to weak infrastructure spending amid investigations of publicly funded projects, and natural hazards.”

Data from the Department of Budget and Management showed that expenditure on infrastructure and other capital outlays for the January-to-September period declined by 10.7% to P877.1 billion from P982.4 billion a year ago.

Sluggish infrastructure spending, affected by adverse weather and stricter fund releases to the Department of Public Works and Highways, dragged Philippine GDP growth to a weaker‑than‑expected 4% in the third quarter. This brought the nine‑month average growth to 5%.

“Low inflation and ongoing monetary easing should sustain domestic demand, supporting stronger growth in 2026,” the ADB said.

The Bangko Sentral ng Pilipinas has so far reduced borrowing costs by a cumulative 175 basis points (bps) since it began its easing cycle in August last year, bringing the key rate to 4.75%.

“However, uncertainties arising out of investigations of publicly funded infrastructure projects and weather-related disruptions pose downside risks,” it added.

A corruption scandal involving anomalous flood control projects has already triggered protests, slowed economic activity, and shaken investor confidence in the country.

An independent commission is now investigating the allegations that government officials, lawmakers and contractors received billions of pesos in kickbacks from anomalous projects.

STILL SECOND FASTEST

Based on the latest ADO, the Philippines is still projected to be the second fastest-growing economy in Southeast Asia this year, just behind Vietnam (7.4%) and tied with Indonesia (5%). It is ahead of Malaysia (4.5%), Singapore (4.1), and Thailand (2%).

For 2026, the Philippines is still seen to post the second-fastest growth in Southeast Asia, after Vietnam’s 6.4%.

The ADB expects Philippine growth to stay above the Southeast Asian average through 2026.

For the region, the bank raised its regional GDP growth outlook to 4.5% this year from 4.3% in its September update. It also hiked its projections to 4.5% in 2026 from 4.4% previously.

This reflects stronger‑than‑expected third‑quarter results in Indonesia, Malaysia, Singapore, and Vietnam, alongside better external environment and supportive government expenditures, the ADB said.

“Several risks to the subregion’s (Southeast Asia) prospects remain, notably from global uncertainty, climate-related disruptions, and domestic political developments,” the ADB said.

Despite these risks, the lender said the Southeast Asian region remains resilient, with prospects depending on sustained policy support and flexible economic strategies.

However, the ADB’s Philippine growth forecast was slightly below the projected 5.1% growth of developing Asia for this year but exceeded the 4.6% growth forecast in 2026.

Developing Asia includes 46 Asia-Pacific countries, but excludes Japan, Australia, and New Zealand.

Meanwhile, the ADB expects Philippine headline inflation to average 1.8% this year and 3% in 2026, unchanged from its September forecast.

This is slightly higher than the Bangko Sentral ng Pilipinas’ (BSP) 1.7% average forecast for this year, but lower than the 3.3% average forecast for 2026.

Headline inflation averaged 1.6% in the first 11 months of 2025, according to the Philippine Statistics Authority.

Meanwhile, the Mastercard Economics Institute (MEI) gave a 5.6% growth forecast for the Philippines in 2026, which will make it the fastest-growing economy among the Association of Southeast Asian Nations-5 (ASEAN-5).

This is ahead of Indonesia (5%), Malaysia (4.2%), Singapore (2.2%), and Thailand (1.8%).

“In 2026, the growth trajectories of the ASEAN-5 nations are expected to diverge. GDP is projected to expand steadily in Indonesia and the Philippines, while Malaysia, Singapore, and Thailand may grow more slowly,” MEI said in its December Economic Outlook 2026.

MEI also expects Philippine inflation to settle at 2.8% next year.

“Because that is within the target range, further monetary policy easing may be possible; interest rates are expected to fall to 4.5% by the end of 2026,” it said.

MEI said strong borrowing momentum may fuel private consumption, while lower policy rates may help sustain this trend.

The report noted travel is a key economic driver, with domestic demand climbing in Malaysia and Indonesia and outbound spending rising in Singapore, Malaysia, Indonesia, and the Philippines.

MEI said Indonesia and the Philippines posted the fastest growth gains, with overseas travel spending jumping by 40% and 28%, respectively, over the period, MEI said. — Aubrey Rose A. Inosante

The number of jobless Filipinos rose by about 570,000 to 2.54 million in October from a year earlier, even as overall employment increased by 460,000, the Philippine Statistics Authority (PSA) reported on Wednesday, underscoring persistent vulnerabilities in the labor market despite headline job gains.

This brought the jobless rate to 5% from 3.8% in the previous month and 3.9% a year ago. It was also the highest in three months or since the post-pandemic high of 5.3% in July.

The unemployment rate averaged 4.13% in the first 10 months from 4% in the same period a year ago.

PSA Undersecretary and National Statistician Claire Dennis S. Mapa attributed the rise in joblessness to recent typhoons and the increase in labor force participation.

The labor force participation rate (LFPR) rose to 63.6% in October from 63.3% a year earlier but fell from 64.5% in September, the statistics agency said in a statement. The estimated LFPR in October translates to 51.16 million Filipinos versus 50.12 million in the same month last year.

However, Mr. Mapa cited “good signs” such as rising employment in the agriculture sector, which added 168,000 jobs from a year ago.

“We saw an increase of 1.87 million in agriculture and forestry jobs quarter on quarter, with the biggest contributor being the growing of paddy rice, as the peak season for rice farming falls in the fourth quarter,” Mr. Mapa said during a briefing.

The PSA’s latest labor force survey showed that while many found work, a significant segment remains jobless — meaning economic improvements may not be reaching all sectors.

Still, the increase in employed people — particularly those aged 15 and over — reflects underlying demand in industries like retail, construction and services. Such gains offer hope that economic activity is picking up ahead of the holiday season.

In October, services accounted for the biggest share of total employment at 60.6%, followed by agriculture with 21.5% and industry at 17.9%.

Underemployment, which covers workers seeking more hours or better-paying jobs, eased to 12% in October from 12.6% a year earlier, but inched up from 11.1% in September. The number of unemployed Filipinos stood at 2.54 million in October, higher than 1.97 million in the same month last year.

“October’s labor market reflects continued progress in improving the quality of work available to Filipinos,” Department of Economy, Planning, and Development Secretary Arsenio M. Balisacan said in a statement.

In a note, Chinabank Research said the unemployment rate climbed in October, as not all new entrants in the labor market found jobs.

“On a positive note, there were gains recorded across industries, including challenged sectors like agriculture and manufacturing,” Chinabank said. “Looking ahead, job creation could pick up during the holiday season.”

PSA data show annual employment gains were spread across several sectors in October, including public administration (+257,000), accommodation and food services (+180,000), agriculture (+168,000), and manufacturing (+152,000).

“However, we note that the sector remains vulnerable to weather-related risks. Meanwhile, despite an uncertain global trade environment, manufacturing jobs increased (+152,000) with local factories expressing improved sentiment in the year-ahead outlook,” Chinabank said.

On the other hand, annual job losses were concentrated in services (-520,000), with notable declines in repair services, household services, and funeral-related activities.

Wholesale and retail trade also saw an annual drop (-66,000) in jobs in October.

Chinabank said this “could indicate that the softness in household consumption growth seen in the third quarter could persist this quarter.”

“Nevertheless, increased seasonal demand during the holidays could support job opportunities in the sector,” it added.

John Paolo R. Rivera, a senior research fellow at the Philippine Institute for Development Studies, said the latest numbers signal that the economy is struggling to create enough jobs.

“Yes, there are red flags. Job creation is slowing, underemployment remains high, and the sectors that usually absorb workers (retail, construction, services) are expanding weakly,” he told BusinessWorld over Viber.

“The worsening unemployment despite higher labor force participation shows that the labor market is widening, but not deepening, meaning more people are willing to work, but the economy is not generating enough stable, quality jobs to match that demand,” he added.

However, IBON Foundation Executive Director Jose Enrique “Sonny” A. Africa cautioned that these “good signs” in agricultural jobs may be overstated.

Looking at the sector historically, agricultural employment has actually fallen from an annual average of 10.8 million in 2022 to around 10 million in the first 10 months of 2025, he said.

“The only ‘good signs’ we should be looking for are steady and rapid increases in the National Government budget for farmers and fisherfolk in terms of production subsidies, extension services, and rural infrastructure,” Mr. Af-rica told BusinessWorld via Viber. — EMPS

The World Bank (WB) sees a gradual recovery for the Philippines in 2026 and 2027, after growth slowed this year due to weaker investment and sluggish consumption, compounded by a corruption scandal and a string of natural disasters.

In its latest Philippines Economic Update released on Tuesday, the multilateral lender trimmed its Philippine gross domestic product (GDP) growth forecast to 5.1% for this year from 5.3% in its June report.

For 2026, it lowered its Philippine GDP growth forecast to 5.3% from 5.4% previously.

The World Bank also cut its Philippine GDP growth projection for 2027 to 5.4% from 5.5% previously.

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

“To borrow from Torsten Slok, chief economist at Apollo (Management), it’s a Nike swoosh pattern. He describes the US economy, and I’m describing our forecast for the Philippines as a kind of Nike swoosh. We have a dip in 2025, and then we have a gradual recovery in 2026 to 2027,” World Bank Senior Economist Jaffar Al-Rikabi said during a briefing.

He noted the average growth of the Philippines over 2025 to 2027 will be lower than 2024 when GDP expanded by 5.7%.

“For 2025… the growth is largely weighed down by domestic factors. In particular, lower construction activity and weaker consumption growth,” he said.

The Philippine economy expanded by a weaker-than-expected 4% in the third quarter, bringing nine-month growth to 5%, as the pace of household final consumption expenditure and government spending slowed amid a corruption scandal.

Mr. Al-Rikabi also noted the deceleration in fixed investment and private consumption due to higher-than-expected number of natural disasters that hit the Philippines this year.

“But for 2026 to 2027, we think that it’s likely that external factors will weigh more heavily on growth, largely slower export demand,” Mr. Al-Rikabi said.

The US imposed a 19% tariff on most goods from the Philippines starting August, dampening export demand.

The World Bank said the Philippine economy’s growth will pick up in 2026 and 2027, fueled by strong domestic demand.

“Private consumption is projected to strengthen as inflation stays low, employment remains robust, and monetary easing lowers interest rates, making it easier for businesses and households to borrow,” it said in the report.

According to the World Bank, private consumption, which accounts for more than 70% of the economy, is projected to expand by 4.8% this year, slowing from 4.9% in 2024. This is expected to pick up to 5.3% in 2026 and 5.4% in 2027.

The World Bank said investment is likely to recover as public infrastructure projects regain momentum, while recent liberalization reforms in telecommunications, transport, logistics and renewable energy improve the business climate.

The multilateral lender also expects headline inflation to average 1.8% this year, describing the pace as “very moderate” and a key source of resilience. This forecast is slightly above the Bangko Sentral ng Pilipinas’ (BSP) 1.7% projection for 2025 and the 1.6% average recorded in the first 11 months.

‘Corruption is unaceptable’

Even as the Philippine economy will see a gradual recovery in the next two years, Mr. Al-Rikabi noted risks are tilted to the downside, with “more prominent” domestic drivers.

“There is a continued challenge of heightened perceptions around governance risks. This could, if it continues, erode investor confidence. It could delay public investment execution, and it could weaken growth,” he said.

The World Bank economist also noted there may be delays in fiscal and structural reforms amid the current domestic environment, “which could slow consolidation and weigh on growth over the medium term.”

A corruption scandal involving anomalous flood control projects has already triggered protests, slowed economic activity, and shaken investor confidence in the country.

“From the World Bank perspective, corruption is unacceptable,” World Bank Country Director for the Philippines, Malaysia, and Brunei Zafer Mustafaoğlu said during the same briefing.

“The World Bank considers it detrimental to any country and has been fighting against corruption in all the member countries that we operate in,” he added.

Mr. Mustafaoğlu said the Philippine government could take this opportunity to increase transparency and modernize its budget execution system “that could actually support longer-term growth and can increase investment confidence (and) can increase long-term potential growth,” he said.

Mr. Al-Rikabi said it is important that the Philippine government double down on governance and institutional reforms. The government should also continue fiscal reforms to ensure “fiscal consolidation continues on a credible path that doesn’t compromise long-term growth.”

Also Mr. Al-Rikabi said adverse climate events remain a source for risk for the Philippines, as it could disrupt food supply and drive prices higher.

On external risks, the World Bank cited policy uncertainty, which could weaken investment trading confidence, disruptive financial market corrections, and weaker growth in key partner countries.

He also noted that as investments in artificial intelligence  normalize, major economies could face sharper deceleration, which would weigh on Philippine exports and industry.

Mr. Al-Rikabi said the government should ensure structural reforms, which opened up some sectors to more foreign investments, are implemented effectively.

Upper middle-income status

Meanwhile, Mr. Al-Rikabi said the Philippine gross national income (GNI) per capita has managed to reach the upper middle-income country (UMIC) status threshold in 2025.

“Our 2025 projection already implies that the Philippines will reach in terms of GNI per capita the threshold for UMIC this year,” he said.

According to the World Bank’s last country income classification, the Philippines is still a lower middle-income country with a GNI per capita of USD 4,470 in 2024. It was only USD 26 shy of the World Bank’s adjusted GNI per capita requirement of USD 4,496 to USD 13,935 for UMIC status.

However, Mr. Al-Rikabi said that the World Bank has to see three years of GNI per capita above the threshold to formally reclassify a country as UMIC.

“That implies as long as the economy continues to grow in 2026-2027, the country would be reclassified as UMIC in 2028,” he said.

The Washington-based lender will release its new country status thresholds in July 2026. — A.R.A. Inosante