The World Bank’s latest Philippines Economic Update reports that the Philippine economy experienced slower growth in 2025 due to domestic challenges, decreased investment, and weak global demand. The report projects a modest recovery for 2026 and 2027, supported by steady consumption and lower inflation.
According to the update, continued economic growth will depend on stronger public investment execution, credible fiscal consolidation, and structural reforms aimed at increasing competitiveness in sectors such as manufacturing, agriculture, information technology, and tourism. The report also emphasizes the importance of developing high-potential urban corridors.
Zafer Mustafaoğlu, World Bank Division Director for the Philippines, Malaysia, and Brunei, stated: “The Philippines can leverage its strong economic foundations to implement bolder reforms that can unlock faster, more inclusive growth. Removing barriers that limit investment and productivity and strengthening competitiveness can create more and better-paying jobs, expand opportunities, and reinforce economic resilience.”
The forecast indicates that GDP growth will slow to 5.1 percent in 2025—slightly below previous estimates—before rising to 5.3 percent in 2026 and 5.4 percent in 2027. The slowdown is attributed to reduced domestic investment, weak business confidence, a significant drop in foreign direct investment, weather-related disruptions such as typhoons and floods, as well as governance issues delaying public investments. Services exports have also declined due to weaker demand for business services and fewer tourist arrivals.
Recovery over the next two years is expected to be driven by robust domestic demand. Private consumption should increase with low inflation rates maintained, strong employment figures sustained, and monetary policy easing making borrowing easier for businesses and households. Investment is projected to rise as infrastructure projects regain momentum alongside recent liberalization reforms in telecommunications, transport, logistics, and renewable energy.
The report suggests that reviving the tradables sector could further strengthen recovery efforts. In recent years growth has focused on non-tradable sectors like construction and retail; however, regulatory burdens have limited job creation in manufacturing and hindered export performance compared with regional peers.
Recommendations include improving competition in logistics and energy markets; digitizing permit processes; streamlining customs procedures; and enhancing investment facilitation—all aimed at reducing costs for businesses while attracting private capital.
The PEU also stresses the need for targeted investments in emerging urban corridors across Luzon, Visayas, and Mindanao—areas where most wage jobs are located—to support their development through better connectivity policies.
Jaffar Al-Rikabi, World Bank Senior Economist said: “For long-term sustained growth, the Philippines needs to ensure that low-income and middle-income regions continue to grow faster than the National Capital Region as they have done over the past decade. To do that, high-potential urban areas—urban corridors—need to be harnessed as engines of job creation and productivity that generate spillover benefits across the country.”
Finally, the report notes that local government units (LGUs), which account for about one-quarter of public spending nationwide must enhance their capacity for service delivery if these reforms are to succeed. This approach could help drive a cycle of increased investment leading to higher productivity levels—and ultimately greater revenue generation—for communities throughout the country.