The Philippine economy may grow more slowly in 2026 from what is already seen as an easier pace this year, with a lack of fiscal flexibility expected to dampen economic activitiy, ANZ Research said on Thursday.
Growth will also be more moderate because of muted export demand amid trade barriers and economic policy uncertainty, the research arm of the ANZ Banking Group said.
ANZ forecasts the rate of growth in the country’s gross domestic product (GDP) will soften further to 5.2 percent in 2026, after a 5.4 percent expansion expected for this year. The 2025 estimate already indicates an easing from 5.7 percent in 2024.
The projections made by the multinational Melbourne-based bank are lower than the Philippine government’s target range of 5.5 to 6.5 percent for 2025 and 6 to 7 percent for 2026.
ANZ economist Arindam Chakraborty said Philippine growth “has shifted to a lower gear.”
He said the growth momentum has not yet recovered enough to reach the 2016 to 2019 pre-pandemic level of 6.6 percent average GDP.GDP grew by 5.4 percent in the first half of 2025, below the target level.
Widening fiscal deficit
Besides slowing growth, the country is also struggling to contain the fiscal deficit, which as of end-August, has widened by 24.7 percent year-on-year to P869 billion. The full-year target is P1.56 trillion.
Chakraborty said the Philippines “will need to contend with tighter fiscal policies if the 2025 budget deficit targets are to be met.”
The government is aiming to reduce the budget gap to 4.3 percent of GDP by 2028.
Chakraborty said consumption growth will still drive economic growth. However, this will be mainly supported by consumers’ credit card use and salary loans, instead of income.
He also said “low productivity growth has dampened the incentive for private investment,” resulting in “continued underperformance of gross fixed capital formation.”
Interest rate cut
The ANZ economist expects the central bank’s Monetary Board will cut the key interest rate by another 25 basis points (bps) this year. This would bring the total rate cuts to a cumulative 175 bps since August 2024.
For next year, Chakraborty sees the Bangko Sentral ng Pilipinas (BSP) keeping the policy rate at 4.75 percent. Other analysts expect further monetary policy easing in 2026.
The ANZ noted that banks may have not completely passed on previous interest rate increases to borrowing rates.
The effect of this reluctance to adjust the rates they charge on loans is that it “could limit the effectiveness of monetary easing in stimulating credit and investment,” ANZ said.
Inflation
Meanwhile, inflation is expected to remain manageable and within the government forecast range of 2 to 4 percent. ANZ projects inflation will average 1.8 percent this year and climb to 3 percent in 2026.
Chakraborty noted that the low inflation rate — due to stable rice and fuel prices — has not improved household consumption.
He said household demand is limited by uncertain wage increases and drained savings, which have yet to recover since the Covid pandemic.
