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Sam Beltran

The Philippines’ rise to upper-middle-income status was supposed to mark a new phase for one of Southeast Asia’s most closely watched emerging economies.
Instead, analysts say the milestone has done little to shield the country from short-term pressures weighing on growth: sluggish public spending, delayed infrastructure, high living costs and the fallout from investigations into alleged irregularities in flood control projects.
Those strains have left the Philippines looking like a regional laggard. Bank of America is forecasting gross domestic product growth of 2.5 per cent for 2026 – tying with Thailand for the slowest pace in the region – even as it raised its overall Asean growth forecast to 5 per cent, up from 4.7 per cent at the end of the second quarter.
“The Philippines is expected to see a sharp slowdown relative to 2025,” the bank said in its September report, comparing that to Singapore’s projected 5.1 per cent growth, Malaysia’s 5.2 per cent, Indonesia’s 5.3 per cent and Vietnam’s 8.2 per cent.
As other members of the Association of Southeast Asian Nations surge ahead, the growing growth disparity raises serious questions about whether Manila can convert its long-term strengths – a young population, a robust consumer base and an expanding services sector – into the growth momentum seen elsewhere in the region.
Modest consumption gains and a bottoming-out of investment spending could support limited growth in the second half of the year, Bank of America said, while targeted subsidies for vulnerable consumers and the transport sector could cushion the impact of energy shocks.

“Compared with its Asean peers, the Philippines is currently facing a relative slowdown,” said Jonathan Ravelas, a Filipino economist and market strategist. “Countries such as Vietnam, Indonesia and Malaysia are benefiting more from manufacturing expansion, supply-chain relocation and stronger foreign direct investment inflows.”
The Philippine economy had been “heavily dependent on consumption and that engine has been tempered by higher borrowing costs, elevated living costs and slower public spending”, he said.
Michael Ricafort, chief economist at Rizal Commercial Banking Corporation, said increased government “catch-up spending” on infrastructure was the “missing element or link that could once again accelerate Philippine economic and GDP growth”, offsetting the underspending seen since late 2025 amid ongoing flood-control corruption investigations.


“This would lead to better fiscal performance, in terms of increased government tax and revenue collections, narrower budget deficits and a lower, better national government debt-to-GDP ratio,” Ricafort said, adding that such spending “would be the major catalyst to pump-prime the economy”, counteracting geopolitical factors that had driven up prices, inflation and interest rates.
Ravelas said the slowdown in infrastructure spending was concerning because public construction “has a strong multiplier effect on the economy”.
Most investors were less troubled by the corruption investigations than by the delays they had caused, he said. “Transparency and accountability are positive for investor confidence but projects must continue moving forward. The challenge for policymakers is to clean up the system without slowing down execution,” Ravelas added.
The Philippines’ challenge is sustaining and accommodating growth
Jonathan Ravelas, economist
Ricafort agreed that governance reforms would be vital to restoring investor confidence in the Philippine economy.
Piled on top of the infrastructure slowdown and governance issues is another worry: forecasters have warned of El Nino-driven drought conditions stretching into early 2027, threatening food prices and agricultural incomes just as households are already feeling the strain of rising living costs.
Ricafort wants to see the gap filled with targeted, non-monetary relief such as ayuda (aid) payments and job programmes aimed at the poorest Filipinos, to ease price pressures “largely caused” by the Iran war.
Some of these measures are already being rolled out: subsidies have been directed at transport, agriculture and fisheries, among other hard-hit sectors, in an attempt to stop higher costs being passed on to the public, along with financial support for low-income households.
But Ricafort said more needed to be done. “Technology, on top of education, is one of the biggest equalisers that would lift more people from poverty, especially in the countryside,” he said, pointing to raised productivity across agriculture and manufacturing that would also increase the country’s global competitiveness and strengthen food security.

Philippines vs Thailand
Despite the sluggish growth outlook, analysts say the Philippines still has room to catch up.
“I would not read the Bank of America forecast as the Philippines losing its long-term growth story,” Ravelas said. “The country’s elevation to upper middle-income status reflects the progress it has achieved, while the BofA outlook is more about the near-term challenges it faces.”
That upgrade, announced by the World Bank on July 1, was based on the strength of the Philippines’ 2025 gross national income per capita, placing it in the upper middle-income bracket.
This year’s slowdown has since tempered expectations, but Ravelas says the investment case for the country remains intact.
He said investors liked the Philippines’ young population, sizeable domestic market, resilient consumer base and growing services industry, but were “looking for stronger execution, particularly in infrastructure, foreign investment attraction and policy implementation”.
Before the Covid-19 pandemic, the Philippines actually had one of the region’s fastest-growing economies and had kept growing steadily since, Ricafort said.
Analysts say the comparison with Thailand is instructive because the two Southeast Asian economies have arrived at the same 2.5 per growth figure from different directions.

“Thailand is a net exporting country with relatively lower inflation and interest rates, while the Philippines is a net importing country, with inflation and interest rates among the highest in the region,” Ricafort said.
Ravelas pointed to other differences. “Thailand has strong infrastructure, manufacturing and tourism, yet it is constrained by an ageing population, weak domestic demand and slower labour force growth,” he said.
“The Philippines, on the other hand, benefits from a young population, strong consumer spending, remittances and long-term demographic momentum, but continues to struggle with productivity, infrastructure gaps and inflation volatility.”
Put another way, Thailand struggled to find new sources of growth, “while the Philippines’ challenge is sustaining and accommodating growth”, Ravelas said, pointing to energy, water and transport networks that need to “keep pace with urbanisation and economic expansion.”
“Ultimately, the Philippines still has the fundamentals to outperform over the long term,” he said. “But turning potential into growth will depend on the quality and speed of policy execution.”


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High living costs and delayed public works drag growth projections down far behind regional front runners


High living costs and delayed public works drag growth projections down far behind regional front runners.


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Rizal Commercial Banking Corporation

Upgraded but underperforming: Philippines’ growth lags behind

.css-1c6uqr6{color:inherit;font-weight:inherit;font-size:inherit;font-family:inherit;line-height:inherit;overflow-wrap:break-word;}High living costs and delayed public works drag growth projections down far behind regional front runners

High living costs and delayed public works drag growth projections down far behind regional front runners