Philippine economic growth may remain sluggish through 2027

By Justine Irish D. Tabile, Senior Reporter

WEAK household consumption, subdued investment and elevated inflation are expected to constrain Philippine economic growth through 2027, according to economists.

Maybank Research Pte. Ltd. lowered its full-year gross domestic product (GDP) growth forecasts to 2.4% this year from 2.7% previously, and to 3.2% in 2027 from 4% previously.

If realized, both projections would fall below the government’s 3.5%-4.5% growth target this year, and 5%-6% target next year.

Maybank Research said investment indicators point to weaker foreign investor momentum, while rising public debt and higher fiscal deficits were adding to fiscal pressures.

“Higher oil prices amid the Middle East conflict and peso depreciation are also expected to sustain inflationary pressures and erode household purchasing power, while delays in public infrastructure implementation could further constrain growth,” it said in a commentary on Tuesday.

“Overall, we expect the economic recovery to remain gradual, with weak household spending, subdued investment and limited fiscal flexibility continuing to weigh on growth,” it added.

Against this backdrop, Maybank Research also lowered its private consumption growth forecast to 3% this year from 3.2% previously and to 3.4% in 2027 from 4.1%.

It also expects gross fixed capital formation to contract by 6.8% this year, compared with its previous forecast of a 6.6% decline, before growing by 1.7% in 2027, slower than its earlier 2.1% projection.

Maybank Research’s downgraded forecasts come after the Philippine economy grew by just 2.1% in the third quarter, slowing from 4% in the same period last year and the revised 2.4% in the second quarter.

This was the slowest GDP growth since the 3.8% contraction in the first quarter of 2021, during the coronavirus pandemic. Excluding the pandemic years, this was the weakest in over 16 years or since the 1.8% expansion in the fourth quarter of 2009.

The third-quarter performance brought GDP growth in the first nine months to 2.5%, well below the government’s 3.5%-4.5% full-year target.

Economy Secretary Arsenio M. Balisacan said the Philippines will have to grow by 6.3% in the fourth quarter to achieve the lower end of the target.

“I would like to believe that the fourth-quarter performance should be better. We need something like 4% to 4.5% or so to achieve at least 3%,” Mr. Balisacan told reporters on Monday.

“I think if we can achieve that, I think it is a remarkable achievement already given that we are coming from a very low base of growth in the first three quarters,” he added.

Meanwhile, HSBC Global Investment Research Senior ASEAN (Association of Southeast Asian Nations) Economist Aris D. Dacanay said the weaker-than-expected third-quarter performance posed a “sizeable downside risk” to the bank’s growth forecasts.

“Looking ahead, growth will likely continue to struggle. Our baseline view is for growth to average 3.2% and 4.8% in 2026 and 2027, respectively,” Mr. Dacanay said in a commentary.

Oxford Economics Assistant Economist Jun Hao Ng said it also projects economic growth to fall below the government’s targets, at 3% this year and 4.5% next year.

“We anticipate that the slow recovery in public infrastructure spending will persist, and inflationary pressures will extend into 2027 while labor market weakness lingers. These trends are set to keep consumer sentiment subdued, holding back broader growth,” he said in a commentary.

“While we don’t expect political infighting to significantly disrupt policymaking, it could still weigh on business and investor confidence,” he added.

However, Mr. Ng said the underlying weakness will be partly masked by shifting base effects, which will lift annual headline growth.

He warned that “risks to the growth outlook will remain tilted to the downside from El Niño effects and the Middle East conflict.”

In a separate report, Oxford Economics said that a record-strength El Niño could leave Philippine GDP 2.6% below its baseline level by late 2030.

The Philippines and Malaysia would be among the hardest-hit economies under the scenario, after Indonesia, where GDP could fall 3.4% below its baseline level.

“Food price and spending pressures fade by 2030, but consumption stays low as the productivity loss weighs on incomes,” Oxford Economics Lead Economist Beatrice Tanjangco said in the report.