THE Philippines’ current growth trajectory will not be enough to lift the country to high-income status by 2040, McKinsey & Company said.
“The present trajectory needs to be accelerated,” the consulting company said in a report released on Thursday.
Growth of 5.0 percent to 6.0 percent, “while respectable, is insufficient to reach high-income status by 2040.”
McKinsey said that while the country had posted steady growth over the past decade, the pace was short of what is required under AmBisyon Natin 2040, which aims to transform the Philippines into a predominantly middle-class, high-income economy.
Gross domestic product (GDP) growth slowed to 4.4 percent last year, markedly slower than the 5.7 percent seen in 2024. The country’s economic managers are optimistic that growth will rebound this year on the back of recovering investments, slower inflation and improving consumption.
The goal for this year is 5.0-6.0 percent, that for 2027 is 5.5-6.5 percent next year and 6.0-7.0 from 2028 to 2030.
McKinsey noted that since 2010, the Philippine economy has expanded by an average of 5.3 percent annually, placing it among the faster-growing economies globally and near the top in Southeast Asia.
Gross national income per capita also more than tripled since 2000, reaching about $4,470 in 2024, just below the World Bank’s upper-middle-income threshold.
But McKinsey said these gains, while significant, reflected a growth model relying heavily on domestic consumption and labor expansion rather than productivity and export competitiveness.
“Under a business-as-usual scenario, income per capita would likely reach only $9,300 by then, firmly short of the high-income threshold,” it said.
“This is the classic middle-income trap: Growth slows before productivity, exports, and incomes fully converge with those of advanced economies,” it added.
To realistically achieve high-income status, McKinsey said the Philippines would need to sustain much faster growth of around 6.0 to 7.5 percent annually over the next two decades.
Even then, the timeline could extend beyond 2040, with high-income status more likely between 2045 and 2050 if reforms are executed well.
“In the high-income target path, this requires productivity to become the lead growth engine (roughly 47 percent of growth by 2045), not just a supporting contributor,” McKinsey said.
“While capital deepening and stronger labor participation will matter, the high-income gap closes only if productivity becomes the main driver of growth — raising the efficiency of capital and translating human capital into higher output per worker,” it added.
It stressed that weak productivity growth remained a key challenge, as over the past 35 years, productivity has contributed only about 10 percent of overall economic growth, with expansion driven mainly by adding more workers and capital.
McKinsey said this approach is reaching its limits, especially as the country’s demographic advantage is expected to peak around 2030 before gradually fading as population growth slows and the dependency ratio begins to rise.
To break out of what it called a “middle-income trap,” McKinsey said the Philippines needs a decisive shift toward productivity-led and export-oriented growth.
Productivity would have to become the main driver of expansion, accounting for nearly half of economic growth by the mid-2040s, compared with a much smaller share today.
“The country’s growth model has relied more on expanding inputs (adding workers and capital), rather than using those inputs much more efficiently. This model can deliver stable expansion, but it tends to plateau unless productivity accelerates,” McKinsey said.
“These dynamics form a “comfort trap,” delivering steady growth but without convergence: Consumption can sustain activity, but tradables and productivity are what compound incomes,” it added.
It identified manufacturing, agriculture, information technology and business process management, and tourism as priority sectors that could drive higher productivity and exports if supported by the right policies and investments.
It also stressed the importance of economy-wide enablers such as lower power and logistics costs, stronger human capital, a more predictable business environment, and wider adoption of artificial intelligence to lift efficiency across sectors.
McKinsey said the Philippines still has a window of opportunity, given its young workforce, strategic location, and ongoing reforms in areas such as investment liberalization and renewable energy.
But it warned that without a clear pivot toward higher productivity and global competitiveness, the country risks growing old before it grows rich.
“The solid gains of the past decade give it momentum, but without structural changes, that momentum may fade,” McKinsey said.
“If the Philippines can raise productivity by even 30 to 40 percent over the coming decade, it could meaningfully close the income gap with upper-middle-income peers, attract unprecedented levels of investment, and reposition itself as a competitive, innovative and outward-looking economy,” it added.
“Failure to act, however, carries the risk of stagnation — where demographic advantages fade, industries plateau and opportunities migrate elsewhere.”
