THE growth of the Philippine economy may still be below its potential in 2026 and 2027, according to a Bank of America (BofA) Global Research report released Friday.
“We estimate 2026/27E GDP to grow 4.6/5.0 percent — below the generally viewed sustainable growth rate of 5.5-6.5 percent,” the report said.
In the fourth quarter (Q4) of 2025, GDP fell to 3 percent, the slowest since the pandemic. It also brought 2025 overall economic growth to 4.4 percent, the lowest since 2011 (excluding pandemic years), missing the government target of 5.5 to 6.5 percent.
The study noted that domestic demand grew by just 0.7 percent due to weak private consumption and government spending, as well as a decline in investments.
However, a rebound in exports and slower import growth helped mask the slump in the domestic economy.
Exports expanded by 15 percent in 2025, the highest since 2017 and a recovery from the declines in 2023 and 2024.
The trade deficit fell by 10 percent as imports posted only 5-percent growth.
It’s unclear how the US tariff changes would influence Philippine exports, which may slow this year if any of the 2025 export gains resulted from trade diversion from China, said the report.
The US Supreme Court last week ruled as unlawful the Trump administration’s five International Emergency Economic Powers Act (IEEPA) tariff measures: reciprocal, fentanyl, Russian oil (on Indian imports), Brazil, and trade deals negotiated with foreign countries pursuant to the IEEPA.
The BofA report said it believes weak economic growth in the Philippines will continue in the first half of the year, since consumer and investor confidence may take some time to recover.
A steep decline in all forms of government disbursements followed the infrastructure spending scandal that broke in Q3 2025, and the recovery timeline for these disbursements remains unclear.
Government spending grew by 19 percent in Q1 2025 due to frontloading in relation to the midterm elections, providing a high base of comparison for early 2026, said the report.
However, it noted that the Department of Finance committed to matching the level of government spending in early 2025 to avoid a sharper decline in 2026.
Earlier this month, the Bangko Sentral ng Pilipinas cut its policy rate for the sixth time in 18 months, bringing total cuts to 225 basis points and setting the policy rate at 4.25 percent.
While the BSP expressed openness to future cuts, the BoFA report said the country has reached the terminal rate.
It cited that the rate differential between the Philippines and the US is at its lowest, and inflation is potentially reaching the upper end of the BSP’s 2 to 4 percent target range by December.
In 2025, overall credit growth slowed to slightly under 10 percent, but expanded in utilities (27 percent), consumer (21 percent), and transport (14 percent).
However, manufacturing credit fell by -9 percent and construction by -5 percent.
Credit growth may stay subdued but recover in the second half of this year if the historical relationship of credit demand at twice real GDP holds, the report concluded.