The Philippine economy will expand by 5.6 percent this year and by a further 6 percent in 2026 in a broadly stable growth momentum, the Organization for Economic Cooperation and Development (OECD) said in its latest outlook released on Wednesday.
Although this year’s growth rate in gross domestic product (GDP) will ease slightly from 5.7 percent in 2024, inflation will remain low, giving the policy-setting Monetary Board of the central bank enough leeway “to continue the easing cycle” for interest rates, the Paris-based organization said in its OECD Economic Outlook 2025.
“We see the growth momentum to be broadly stable,” Cyrille Schwellnus, OECD head of the Indonesia and Philippines Desks, said in an online meeting with reporters.
The Philippines is less exposed to a slowing global trade than other Southeast Asian economies “because its growth is mainly driven by domestic demand,” Schwellnus said.
Robust consumption
Robust household and government consumption helped the Philippine GDP, while investment went through a soft patch, the OECD report said, referring to the first quarter of 2025.
That is why its exposure to higher US tariffs has been relatively limited, with merchandise exports to the United States amounting to about 2.5 percent of GDP, it said.
“So the bottom line is that we project steady growth of 5.6 percent in 2025, and then a slight acceleration to 6 percent for 2026,” Schwellnus added.
In the Philippines as in other Southeast Asian countries, consumer spending is primarily the economic growth driver, the OECD official pointed out.
“So it’s the main driver of growth. And that is underpinned by a robust labor market where unemployment has stayed below 4 percent over the past months,” Schwellnus said.
Then there is also the government-spending narrative in the run-up to the May 12 midterm election.
This prompted Schwellnus to say: “Government spending has also been pretty strong recently, especially in the first quarter ahead of the midterm election. So that has also supported growth.”
Schwellnus said “investment is going through a soft patch, growing well below its average over the past three years.”
“Exports again are growing at a healthy pace, but we expect that to weaken on the back of escalating global trade tensions,” he added.
Low inflation
OECD anticipates Philippine inflation, the rate of increase in prices in a given period, to remain under control at 2 percent this year, and 3.1 percent in 2026, in light of a balanced domestic demand and stable Philippine peso.
“Price pressures have moderated. So headline inflation has come down to 1.4 percent in April, which is below the central bank’s target range of 2 to 4 percent,” Schwellnus said.
Declining food and fuel prices drove the headline inflation slower, while core inflation eased on the back of moderate domestic demand growth.
“That decline reflects in part declines in food and energy costs, but also moderation in core inflation,” Schwellnus said.
“So, you know, inflation excluding food and energy is now close to the lower bound of the central bank’s target as well,” he added.
“Looking ahead, we expect inflation to gradually return to 3 percent as food prices stabilize and monetary policy continues to ease,” he said.
6% GDP growth in 2026
In line with this expectation, OECD sees GDP growth climbing back to 6 percent next year.
The Philippine economy grew 5.4 percent in the first quarter of 2025, from 5.9 percent a year earlier.
This falls below the government’s assumption of 6 percent to 8 percent for full-year 2025.
GDP is the total value of goods and services produced by a country in a specific period.
Moderately restrictive
Fiscal policy will be moderately restrictive in 2025 and 2026, with a gradual reduction in fiscal deficit to 4.6 percent of GDP in 2026 from 5.7 percent, OECD said.
“Complementing recent pro-competition reforms with measures to streamline regulations across the economy–including in key network sectors such as energy, telecommunications, and transport–is key to lifting investment from relatively low levels,” the report said.
However, OECD sees monetary policy easing offsetting any mild fiscal consolidation.
The Bangko Sentral ng Pilipinas (BSP) initiated the ongoing monetary easing cycle in August 2024, bringing the policy rate from 6.5 percent to 5.5 percent in April 2025.
With real GDP expected to grow below trend and with stable inflation expectations, there is room to continue the easing cycle over 2025-2026, OECD said.
This will bring the policy rate to a more neutral level of about 4.75 percent to 5 percent in the latter half of 2026, it said.
The report noted that fiscal policy will be slightly restrictive this year and in 2026, because the authorities are naturally expected to pursue gradual fiscal consolidation to put public debt–currently at about 60 percent of GDP–on a downward path.
“The overall macroeconomic policy mix strikes a balance between fiscal prudence and support to growth among global headwinds,” Schwellnus said.
Balanced risk
OECD views the risk faced currently by the Philippine economy remaining broadly balanced.
A sharper-than-expected global economic slowdown–especially in America and China– could weaken demand for exports and dent remittances and, as a result, weigh on consumption and investment, it said.
On the upside, the recent liberalization of foreign investment rules and enhanced fiscal incentives are are seen offering a chance to offset headwinds from exports with higher capital inflows.
“Looking further ahead to the medium-term growth prospects, we see significant scope for policy reforms to boost productivity and living standards,” Schwellnus said.
The OECD identifies two critical areas in the country’s growth prospects. These are the barriers to entry and competition, and non-wage labor costs.
“Electricity prices are very high in the Philippines, so strengthening competition would likely help to bring down prices,” Schwellnus said.
“And all that would actually help lower costs for businesses and consumers while encouraging private sector investment,” he said.
Second priority
The OECD also sees what it calls “a second priority,” and that is non-wage labor costs.
“So these should be brought down, and that could be done, for instance, by shifting some of the social contributions that are currently financing health insurance to general taxation,” Schwellnus said.
“We also see some room for employment regulations to be updated to make it easier for businesses to create formal jobs,” he added.
The whole point is, Schwellnus said, to expand opportunities for workers while fostering a stronger foundation of economic growth.
Global weakening
The OECD noted how global economic prospects are “weakening,” weighed by substantial barriers to trade,on top of tighter financial conditions, diminishing confidence and heightened policy uncertainty.
These are seen having adverse impacts on global economic growth, and slow global growth to 2.9 percent in 2025 and 2026, from 3.3 percent in 2024.
The slowdown is expected to be most concentrated in the United States, Canada, Mexico and China, with smaller downward adjustments in other economies.
GDP growth in the US is projected to drop to 1.6 percent in 2025 and 1.5 percent in 2026 from 2.8 percent in 2024.
The Euro area will experience modest growth of 1 percent in 2025 and 1.2 percent in 2026, from 0.8 percent in 2024.
China will grow moderately by 4.7 percent in 2025 and 4.3 percent in 2026, from 5 percent in 2024.
In Southeast Asia, Vietnam is expected to lead the pack, followed by the Philippines in terms of GDP growth projections.
However, as a trade-dependent economy, OECD said Vietnam “remains highly exposed to external developments.”
Vietnam’s GDP is projected to slow to 6.2 percent in 2025 and 6 percent in 2026, from 7.1 percent in 2024.
Thailand’s economy will slow down to 2 percent in 2025 from 2.5 percent in 2024, but recovery in domestic demand will drive growth to 2.4 percent in 2026.
Malaysia’s economy is expected to grow 3.8 percent in 2025 and 4.1 percent in 2026, slower compared with 5.1 percent in 2024.
Indonesia will grow 4.7 percent in 2025 and 4.8 percent in 2026 from 5 percent in 2024. ~*~
