OECD Economic Outlook, Volume 2025 Issue 2

Philippines

Real GDP is projected to grow by 4.7% in 2025, 5.1% in 2026, and 5.8% in 2027. Private consumption is supported by a strong labour market and contained inflation, but investment has weakened as the execution of public infrastructure projects has slowed on the back of a corruption scandal linked to public works. Inflation is anticipated to fall to 1.6% in 2025, before gradually reverting to the mid-point of the central bank’s 2-4% target band as favourable food and energy price shocks fade and domestic demand recovers. Risks include a more persistent than expected weakness in public investment amid tighter corruption controls and further declines in investor confidence. The exposure to higher US tariffs is limited.

Monetary policy easing started late in 2024 and has room to continue as inflationary pressures remain subdued and growth will remain below trend in the near term. Fiscal policy is moderately restrictive but accelerating the pace of fiscal consolidation would help re-build fiscal buffers and place debt on a more prudent path. Regulatory reforms including lowering barriers to foreign investment and trade, fostering competition in electricity, telecommunications, and ports, and streamlining economy-wide regulations could raise investment and productivity.

Economic growth has weakened

Following strong growth in the first half of 2025, momentum weakened in the third quarter, with growth slowing to 4.0% year-on-year. Private consumption has remained resilient, underpinned by a strong labour market, with the unemployment rate at close to 4% in September, close to the lowest levels recorded in recent years. However, investment has slowed markedly due to a sharp contraction in public construction amid a corruption scandal linked to public works, with government construction down 26% year-on-year in the third quarter. While industrial production and merchandise exports have moderated, tourist arrivals have partly recovered after a mild slowdown earlier in the year. Consumer sentiment has shown some improvement, but business confidence has weakened. Low inflation and improving financing conditions remain supportive.

Headline inflation remained at 1.7% in October while core inflation eased to 2.5%, with both below the mid-point of the central bank’s 2–4% target range. Commodity prices have eased, containing external price pressures, but the currency has depreciated by about 6% over the past 6 months. Exposure to higher US tariffs is relatively limited, with merchandise exports to the United States amounting to around 2½ per cent of GDP.

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

Monetary easing is supporting the economy amid fiscal consolidation

The central bank initiated the ongoing monetary easing cycle in August 2024, lowering the policy rate from 6.5% to 4.75% by October 2025, giving a broadly neutral monetary policy stance. With inflation remaining below target, demand-side pressures subdued, and growth projected to stay slightly below trend, monetary policy is expected to ease further, with policy rates declining to 4¼% in 2026. Fiscal policy will be moderately restrictive over 2025–27 as the government aims to reduce the budget deficit from about 5.7% of GDP in 2024 to 4.8% in 2027. The pace of this consolidation could be stepped up in 2026 to put public debt on a firmer downward path. The overall macroeconomic policy mix is broadly appropriate given that fiscal policy turns moderately more restrictive in 2026.

Growth will gradually return to trend, but risks are tilted to the downside

Real GDP is expected to grow by 4.7% in 2025, 5.1% in 2026, and 5.8% in 2027. Household consumption is expected to remain robust, as strong labour market performance supports real incomes amid contained inflation. Investment is expected to recover modestly over the coming quarters as borrowing costs decline and public investment picks up, but slower export momentum amid ongoing external uncertainties and softening global demand may temper gains. Inflation will remain contained in the near term amid weak domestic demand but will gradually return to the mid-point of the central bank’s target range as food and energy price effects fade, the recent depreciation of the currency is transmitted to domestic prices, and growth gradually recovers. Risks are tilted to the downside. A more persistent-than-expected weakness in public investment related to tighter corruption controls and weaker investor confidence could weigh on domestic demand over 2026. On the upside, the recent liberalisation of foreign investment rules could help offset headwinds from exports with higher capital inflows.

Building on recent regulatory reforms can boost growth

Recent regulatory reforms have strengthened market competition, and additional reforms could build on this progress by further simplifying and harmonising regulations in key network sectors such as energy, telecommunications, and transport. Streamlined regulatory frameworks in these industries would help lower entry barriers and attract more private investment. Tackling labour market challenges remains essential to raise productivity and enhance employment security. This entails measures to reduce non‑wage labour costs and increase flexibility in labour regulations, thereby encouraging formal job creation. Enhancing women’s participation in the workforce would make better use of existing human capital, for example by addressing restrictive social norms and stereotypes, while promoting flexible and remote work opportunities for women.