THE outlook for Philippine economic growth has become gloomier following 2025’s lower-than-expected result, a Fitch Group unit said.
“We maintain our forecast that the Philippines will grow by 5.2 percent in 2026, although the lower 2025 base makes this a more pessimistic outlook,” BMI said in a report released on Monday.
Gross domestic product (GDP) growth slumped to 3.0 percent in the last three months of 2025 from 3.9 percent in the third quarter, below BMI’s 4.7-percent forecast and the 4.0 percent in a Reuters poll.
Full-year growth slowed to 4.4 percent from 5.7 percent in 2024, missing the government’s 5.5- to 6.5-percent target.
“The sharp slowdown in Q4 signaled persistent weakness in the Philippine economy with the ongoing corruption probe weighing significantly on growth,” BMI said.
It noted that the graft issue had led to reduced government infrastructure spending and that the investment downturn alone had trimmed 1.6 percentage points from fourth-quarter growth.
Investments are expected to rebound this year, but BMI said that beyond “rhetoric from government officials pledging capital spending,” there was no indication as to when the graft probe would end or when delayed infrastructure projects would resume.
“We would, however, be surprised if policymakers allowed the probe to drag on public capex (capital expenditures) for much longer — a quick recovery in infrastructure spending is necessary to hit the government’s 5-6 percent growth target for 2026,” it said.
“Our best guess for now is that the government will make up for the underspending of the capital budget in H2 (second half) 2026, with the low base flattering GDP growth in H2.”
Bangko Sentral ng Pilipinas rate cuts totaling 200 basis points since August 2024, meanwhile, plus an expected 50 basis points more this year, will likely boost private investment.
Consumption, the main driver of Philippine economic growth, is also expected to pick up this year as the country recovers from recent storms and remittances increase due to a weak peso.
“We forecast the peso to weaken by 1.8 percent year on year to average around P58.50/USD in 2026 due to a narrow US-Philippines policy rate differential and weak FDI (foreign direct investment) inflows,” BMI said.
The currency, which has hit three record lows in the P59:$1 level so far this year, weakened by 3.9 centavos to P58.899 to the dollar on Monday.
Exports, which contributed to economic growth last year by posting a 15.2-percent rebound from 2024’s drop of 0.5 percent, could see growth moderate.
Last year’s gains were due to frontloading as well as increased demand for electronics due to the artificial intelligence (AI) boom, but BMI said early data had shown a decline in orders.
The manufacturing purchasing managers index for December, which rebounded to a positive 50.2 percent from 47.4 percent a month earlier, came with a caveat that new export orders had fallen.
“The global semiconductor upcycle appears to have peaked, as firms reassess the returns on AI-driven investments,” BMI said.
“This will materially affect electronic exports — about 54 percent of Philippine exports,” it added.
“Accordingly, we expect export growth to moderate as frontloading tapers, and the higher 2025 base will mechanically make strong year-on-year growth hard to sustain.”
BMI said it was keeping its 2026 forecast “for now” but said the risks to the outlook were tilted toward the downside.
“A key assumption underpinning our 2026 growth forecast is that government spending will pick up in H2 2026,” it said.
“Should there be continued delays to infrastructure spending, household spending and exports will not be enough to offset weaker public spending, posing downside risks to our forecast,” BMI continued.
“Inflation may also run hotter than we forecast if oil prices get another boost from rising geopolitical risks, limiting the BSP’s room for rate cuts.”
