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MODEL PORTFOLIO THE GIST
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BusinessWorld 5 MIN READ

ADB cuts Philippine growth forecast for 2026, warns corruption is a ‘heightened risk’

October 1, 2025By BusinessWorld
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The Asian Development Bank (ADB) has trimmed its gross domestic product (GDP) growth forecast for the Philippines for 2026, while keeping its projection this year, citing persistent external headwinds that weigh on investments.

At the same time, the ADB warned widespread corruption can impact economic growth and investor sentiment, saying it is a “heightened risk.”

In its latest Asian Development Outlook, the multilateral lender trimmed its Philippine growth forecast to 5.7% in 2026 from 5.8% in its July projection. This is below the Philippine government’s 6-7% growth goal for 2026.

For this year, the ADB kept its growth forecast unchanged at 5.6%, which is within the government’s 5.5 to 6.5% target.

“The Philippines’ growth outlook remains resilient amid a global environment of shifting trade and investment policies and heightened geopolitical uncertainties,” ADB Country Director for the Philippines Andrew Jeffries said in a statement on Tuesday.

“Though these uncertainties pose increased risk, we see strong domestic demand anchoring growth, with sustained investments and an accommodative monetary policy supporting the economy’s expansion.”

ADB Senior Country Economist for the Philippines Jacqueline Connell said the Philippine growth forecast for 2026 was downgraded mainly due to heightened uncertainty, shifting trade and investment policies, and lower growth outlook in major advanced economies.

“We see that this will weigh on trade and investment prospects, so that’s the main reason,” she said at a briefing on Tuesday.

Despite external challenges, domestic demand is expected to drive the Philippine economy’s growth this year, the ADB said. This is supported by easing monetary conditions which will help offset the impact of external uncertainties, it added.

In Southeast Asia, the Philippines is projected to be the second-fastest-growing economy until 2026, just behind Vietnam (6%).

It is ahead of Cambodia (5%), Indonesia (5%), Malaysia (4.2%), Lao PDR (3.8%), Timor Leste (3.4%), Myanmar (2%),  Thailand (1.6%),  Brunei Darussalam (1.5%), and Singapore (1.4%).

The Philippines’ growth forecast is also above the ADB’s projection for developing Asia, which is expected to grow 4.5% in 2026 and 4.8% this year. The region includes 46 Asia-Pacific countries, but excludes Japan, Australia and New Zealand.

“Heightened geopolitical tensions, adverse weather conditions, and climate shocks also pose risks which could drive commodity prices higher,” ADB Senior Economics Officer Teresa B. Mendoza said.

At the same time, the ADB sees headline inflation averaging 1.8% this year and 3.2% in 2026. This is slightly higher than the Bangko Sentral ng Pilipinas’ (BSP) 1.7% average forecast for 2025 but lower than 3.3% for next year.

Ms. Mendoza said monetary policy will likely remain accommodative as inflation remains moderate.

For the first eight months, headline inflation averaged 1.7%.

Since August 2024, the BSP has lowered borrowing costs by a total of 150 basis points, bringing the benchmark rate to 5%.

“Continued investment and leveraging on wide-reaching structural reforms that we have seen over the past few years up to this year are essential to lifting growth, generating quality jobs, and reducing productivity and demand,” Ms. Mendoza said.

She cited new laws such as the Accelerated and Reformed Right-of-Way (ARROW) Act that will help speed up infrastructure projects.

Corruption

Meanwhile, corruption remains a “heightened risk” in the Philippines, according to the ADB.

“More broadly, corruption has broad impacts on economic growth in general and investment sentiment. We’re monitoring that and how that may be affected going forward,” Mr. Jeffries said, when asked why there was no mention of governance issues despite a widening corruption scandal involving government projects.

There is growing scrutiny of billions of pesos in flood control projects, with multiple congressional committees and the Palace-backed Independent Commission for Infrastructure probing allegations of corruption.

Finance Secretary Ralph G. Recto earlier said corruption related to flood control projects had cost the Philippines PHP 42.3 billion to PHP 118.5 billion in economic losses annually since 2023.

Mr. Jeffries said there was no reason to cut the Philippine GDP projections due to the corruption scandal. “Between now and our December update, there may be more quantifiable data available that may alter our projections,” he added.

He also assured that the ADB’s partnership with the Philippines remains unaffected.

“We have very strong due diligence on the financial management capabilities of our borrowers and any gaps found are built into the project to mitigate financial management risks,” he added.

Mr. Jeffries said the bank has a joint agreement with the World Bank Group to cross-debar contractors found to have violated project guidelines or engaged in questionable conduct.

“If we find such contractors through our project processes, we debar them from future participation for a certain amount of time. The World Bank follows suit and vice versa,” he said.

While the ADB does not maintain a formal blacklist, Mr. Jeffries said all contractors are vetted against debarment lists and flagged for potential links to money laundering or other financial risks.

“Now that said, if there is an officially sanctioned government blacklist, we would honor such a list and take that into account. But it would need to be officially sanctioned and not just a list of firms in the press, so to speak,” he added.

There are 25 Infrastructure Flagship Projects funded by the ADB in support of the Marcos administration’s “Build Better More” Program. — Aubrey Rose A. Inosante, Reporter

This article originally appeared on bworldonline.com

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