The Philippine economy experienced a slowdown in 2025 due to domestic shocks, weaker investment, and soft global demand, though a modest recovery is projected for 2026–2027, supported by resilient consumption and easing inflation, according to the World Bank’s latest Philippines Economic Update. The report emphasizes that sustaining growth in the coming years will require stronger execution of public investments, credible fiscal consolidation, and structural reforms to enhance competitiveness in tradable sectors such as manufacturing, agriculture, information technology, and tourism, while leveraging high-potential urban corridors.
Zafer Mustafaoğlu, World Bank Division Director for the Philippines, Malaysia, and Brunei, noted that the Philippines can build on its strong economic foundations by implementing bolder reforms to remove barriers to investment and productivity. Strengthening competitiveness can create more and better-paying jobs, expand opportunities, and reinforce economic resilience.
Growth in the Philippines is forecast to slow to 5.1 percent in 2025, slightly below earlier projections, before improving to 5.3 percent in 2026 and 5.4 percent in 2027. The 2025 slowdown is attributed to lower domestic investment, weak business confidence, a decline in foreign direct investment, and domestic shocks including typhoon- and flood-related disruptions, as well as governance issues delaying public investments. Services exports have also weakened due to slower growth in business services and fewer tourist arrivals.
Recovery over the next two years is expected to be driven by strong domestic demand. Private consumption is projected to strengthen as inflation remains low, employment stays robust, and monetary easing reduces borrowing costs for businesses and households. Investment is anticipated to rise as public infrastructure projects regain momentum and recent reforms in telecoms, transport, logistics, and renewable energy improve the business environment.
Reviving the tradables sector is critical for sustained growth. Recent Philippine growth has leaned toward non-tradable sectors such as construction, domestic services, and retail, while burdensome regulations have limited manufacturing job creation, reduced exporting firms, and left exports behind regional peers. Enhancing competition in logistics and energy, simplifying and digitizing permits, streamlining customs, and improving investment facilitation would attract private investment, lower costs, and strengthen the growth outlook of the tradables sector.
The report also highlights the importance of emerging urban corridors for long-term growth. Over 60 percent of urban local government units across Luzon, Visayas, and Mindanao are located within these high-potential areas, where wage jobs and productive firms are concentrated. Targeted investment, improved connectivity, and policy support are needed for these corridors to fully realize their potential and generate spillover benefits nationwide.
Investing in the capacity of local governments, which manage about one-quarter of public spending, is equally essential. Strengthening local service delivery frameworks and implementing the recommended reforms can create a virtuous cycle of investment, productivity, and local revenue growth, accelerating economic growth and job creation across the Philippines.
