Philippine economy likely to expand by 5.3% in 2026 — AMRO

The Philippine economy is likely to grow by 5.3% this year, driven by robust domestic demand, although private investment risks persist amid the graft scandal, the ASEAN+3 Macroeconomic Research Office (AMRO) said on Wednesday.

In its latest Regional Economic Outlook quarterly update, AMRO sees Philippine gross domestic product (GDP) expanding by 5.3% in 2026, unchanged from its annual consultation report released in November.

This is still within the government’s revised 5-6% GDP growth target for 2026.

“The picture for the Philippine economy is that it has been quite steady, but there are some headwinds against (this outlook) on the investment side,” AMRO Chief Economist Dong He said in a virtual news briefing on Wednesday.

“Private investment of course, needs to be supported by investor confidence, and the public investment had been affected by some of the, for example, flood control controversy,” Mr. He said.

If realized, the Philippines is expected to be the second fastest-growing economy in Southeast Asia this year, after Vietnam’s 7.6%.

The country’s growth will likely outpace Cambodia (5.1%), Indonesia (5%), Laos (4.6%), Malaysia (4.4%), Singapore (3%), Myanmar (2.5%), Thailand (1.7%), and Brunei (1.6%).

The Philippines’ GDP growth would also be above the region’s average growth of 4.6% for 2026.

For 2025, AMRO said the Philippine economy likely grew by 5.2%, falling short of the government’s 5.5-6.5% target.

Mr. He also noted that the “fairly weak” third-quarter growth in 2025 prompted a downgrade in forecasts from the October update.

A flood control corruption scandal has weighed on growth, investor confidence and consumption.

In the third quarter, GDP grew by 4%, the weakest growth in over four years, bringing the nine-month average to 5%.

Fourth-quarter and full-year 2025 GDP data will be released on Jan. 29.

Mr. He said private consumption, which accounts for over 70% of the economy, will continue to remain firm, but the corruption scandal hit the investment side, he added.

Meanwhile, AMRO kept its headline inflation forecast for the Philippines at 3.2% this year, matching the Bangko Sentral ng Pilipinas’ (BSP) full-year projection.

Inflation settled at 1.7% in 2025, the slowest pace in nine years or since 2016.

Main risks

Meanwhile, AMRO said climate-related risks and artificial intelligence (AI), which put pressure on the country’s service exports sector, are the two main risks for the Philippine economy.

Mr. He also said that while the economy has expanded “steadily,” growth remains below its pre-pandemic trajectory.

“What’s important is really to strengthen governance, strengthen investor confidence, and prioritize investments or prioritize public spending so the economy will become more resilient (against the main risks),” he said.

Last week, the government unveiled “big bold reforms” before the private sector to counter the slide in investor confidence amid a corruption scandal.

Mr. He said these risks highlight the need to upgrade human capacity and human capital to suit the AI age, as well as strengthen infrastructure to make it resilient amid natural disasters.

“In order to maintain resilience and even aim higher to go back to earlier trajectory of growth, we think that the public policies should really focus on strengthening resilience, particularly in light of the two main risks facing the Philippines in the longer term,” he added.

AMRO added that in the near term, authorities have room to ease monetary policy and deploy fiscal support to help the economy.

“I think in terms of policies, of course, in the short term if there are shocks that hit the economy, monetary policy and fiscal policy would be the first policy instruments that the government can use,” he said.

The BSP has reduced its benchmark rate by a total of 200 basis points since August 2024, bringing the policy rate to a more than three-year low of 4.5%.

Regional growth to moderate

Meanwhile, the ASEAN+3 region is projected to grow by 4% this year, moderating from the regional growth forecast of 4.3% in 2025 amid softer external demand.

ASEAN+3 includes the 10 Association of Southeast Asian Nations (ASEAN) member states plus China, Hong Kong, Japan and South Korea.

ASEAN is forecast to expand by 4.6% this year, slightly slower than 4.8% estimate in 2025.

“While domestic demand is projected to remain firm and continue supporting growth, higher US tariffs and persistent policy uncertainty are expected to weigh on external demand, leading to more moderate growth in 2026,” AMRO said.

The US began imposing a 19% reciprocal tariff on many goods from the Philippines, Cambodia, Malaysia, Thailand, and Indonesia in August 2025.

The think tank noted that overall risks to the regional outlook have become “more balanced,” though downside risks persist and uncertainty continues to rise.

AMRO also flagged five downside risks that could weigh on the region’s baseline forecast for 2025 to 2026, including heightened protectionist measures and a potential slowdown in technology demand.

It also warned that further escalation of US trade measures may dampen regional activity, amid concerns that tariffs will be imposed on sectors currently exempted, such as semiconductors.

Other factors that could undermine regional growth in the near term include potential slowdowns in major economies, surging global commodity prices, and increased financial market volatility.

AMRO said long-term risks include geoeconomic confrontation and policy uncertainty from geopolitical tensions, failure of climate change mitigation and adaptation, natural disasters, and extreme weather events.

It added that cyber insecurity, frontier technology risks, weak preparedness for infectious disease outbreaks, and inadequate planning for an aging population could further weigh on the region in the long run.

Despite these risks, the AMRO noted potential upside, such as strong global semiconductor demand and sustained foreign direct investment (FDI) commitments.

“Strong technology demand and robust FDI inflows into emerging sectors, including advanced electronics, electric vehicles, and digital services, have helped cushion growth despite ongoing tariff headwinds,” Mr. He said. — Aubrey Rose A. Inosante, Reporter