OECD Economic Outlook, Volume 2026 Issue 1

Philippines

Real GDP will grow by 3.2% in 2026, and 5.0% in 2027. Private consumption will soften as higher inflation and weaker labour market conditions weigh on real incomes, but public investment is expected to recover gradually following its late 2025 contraction. Inflation will rise amid higher energy prices and the peso depreciation, and the current account deficit will widen. Given the country’s reliance on energy imports, downside risks are mainly related to energy rationing, alongside weaker remittance inflows and uncertainty about the public investment recovery.

Monetary policy is expected to tighten in 2026 as inflation and exchange rate pressures rise. Fiscal policy will be more expansionary in the near term due to energy-related support measures, before returning to consolidation in 2027. Improving the efficiency of energy support, including through better targeting, would help contain fiscal costs while protecting vulnerable households. Structural reforms to strengthen competition and improve the investment climate would support growth over the medium term.

Growth is slowing amid rising inflation and a weakening labour market

GDP growth slowed to 2.8% year-on-year in the first quarter of 2026, reflecting weaker domestic demand as higher inflation weighed on private consumption and the recovery in public investment remained weak following corruption investigations in late 2025. Short-term indicators suggest weaker growth momentum as higher inflation and weaker labour market conditions weigh on household spending. The unemployment rate rose from 4.4% in December 2025 to 5.0% in March. Inflation rose sharply to 7.2% in April, driven by higher energy prices and peso depreciation, while core inflation increased to 3.9%. Prior to this, inflation had risen gradually on the back of rising food prices.

Philippines

1. Year-on-year growth rates. Seasonally non-adjusted data.

2. Annual rates. The shaded area corresponds to the central bank’s inflation tolerance band.

Source: Philippine Statistics Authority; and CEIC.

Statlink

Philippines: Demand, output and prices

Statlink

The evolving conflict in the Middle East is adversely affecting growth, inflation and the external balance. The Philippines imports over half of its primary energy supply, including 66% of coal, 46% of natural gas, and 100% of its oil consumption. Around 95% of crude oils are imported from the Middle East, but natural gas imports from the region are insignificant. The government has responded with a range of measures, including expanded targeted fuel subsidies for transport operators and vulnerable groups, as well as work-from-home mandates in parts of the public sector and administrative guidance to promote hybrid working in the private sector. Tariff-related risks are less central to the near-term outlook, given the Philippines’ relatively limited direct exposure to the United States, with exports to the US accounting for around 15% of total exports.

Monetary policy is expected to tighten as fiscal policy provides support

The central bank raised the policy rate by 25 basis points to 4.50% in April 2026. Monetary policy is expected to tighten further with the policy rate rising to 5.75% as inflation picks up, due to higher energy prices and currency depreciation since the beginning of the year, before easing to 5.0% later in 2027 as price pressures moderate. Higher borrowing costs and lower remittance inflows — amounting to around 8–9% of GDP, with around 15% originating from Gulf economies – will weigh on domestic demand in the near term. Fiscal policy is projected to be expansionary in 2026 due to energy-related support measures to cushion the impact of higher energy prices on households and firms, with the government budget deficit widening from 5.6% of GDP in 2025 to 6.1% in 2026. The overall macroeconomic policy mix is broadly appropriate, with tighter monetary policy helping to contain inflation while fiscal policy provides temporary support to the economy.

Growth will remain subdued amid energy price pressures

Real GDP is projected to grow by 3.2% in 2026 and recover to 5.0% in 2027. Private consumption is expected to soften in the near term as elevated inflation and weaker real income growth weigh on household spending. Public investment is projected to recover gradually from the second half of 2026 following the contraction in public construction linked to corruption investigations in late 2025, although the strength of the recovery will depend on the pace of project implementation. Exports are expected to slow amid weaker global demand and heightened geopolitical uncertainties. As a net energy importer, the Philippines is particularly exposed to global energy price fluctuations. The current account deficit is expected to widen to 5.4% of GDP in 2026, from 3.3% in 2025, due to higher energy import prices and softer remittance inflows. Inflation is expected to average 6.8% in 2026 before gradually easing amid dissipating energy price pressures and tighter financial conditions. Risks are tilted to the downside. Persistently higher energy prices would push up inflation and weigh on consumption, with the risk of energy rationing further disrupting economic activity. Weaker remittances and a slower pace of the public investment recovery could dampen domestic demand. On the upside, stronger capital inflows following recent foreign investment liberalisation could support investment and growth.

Improving the investment climate and productivity would support growth

In the near term, containing the fiscal cost of energy-related support measures will be important to preserve fiscal sustainability, including by better targeting support to vulnerable households and ensuring that such measures remain temporary in nature. While no explicit end date has been set, some measures, particularly those related to fuel support for transport operators, are linked to price-based triggers. Over the medium term, accelerating the transition towards cleaner and more diversified energy sources, including renewables, by streamlining permitting procedures and strengthening grid infrastructure would strengthen energy security and resilience. Further reforms to enhance regulatory transparency, reduce barriers to entry in key sectors such as energy, telecommunications and transport, and strengthen project selection and implementation capacity of public investment would support stronger investment and productivity. Addressing labour market rigidities and encouraging formal job creation would support productivity growth, for example by reducing informality and easing hiring constraints. Measures to increase female labour force participation, such as expanding access to childcare and promoting flexible work arrangements, could ensure a better use of human capital.