Slower economic growth seen

‘High interest rates to dampen demand’

MANILA, Philippines —  The Philippines is expected to grow at a slower pace this year from a year ago with elevated interest rates likely to dampen demand, according to the advisory arm of the Economist Group.

Speaking at the Management Association of the Philippines’ general membership meeting,  Andrew Staples, editorial director and head of policy research for Asia-Pacific at  Economist Impact, said the growth forecast for the Philippines is at 5.4 percent this year.

The forecast is lower than the country’s full-year gross domestic product growth of 5.5 percent in 2023 and below the government’s six to seven percent growth goal for the year.

“Higher interest rates constrict domestic demand. So that’s one of the reasons why we’re a little bit more bearish on the economy,” Staples told reporters.

He said that with the US Federal Reserve suggesting there would be one interest rate cut later this year, rates are expected to stay higher for longer.

Aside from interest rates staying high, other risks to the Economist Impact’s growth outlook for this year are the military pension reform leading to mass early retirements, and delays in infrastructure development due to strained relations with China.

For next year, Staples said the forecast is for the Philippines to grow at a faster pace of 6.4 percent.

The 2025 growth forecast is lower than the 6.5 to 7.5 percent growth target of the government.

Staples said Philippine economic growth is expected to accelerate next year as interest rates are likely to start going down.

“But that’s really dependent on the (US) Fed,” he said.

He said the US Federal Reserve’s moves are among the indicators the Philippine central bank and many other economies around the world are closely watching.

Economist Impact expects the Philippines to post a 5.6-percent growth in 2026 and to expand at a faster pace of 5.9 percent annually in 2027 and in 2028.

These growth forecasts for 2026 to 2028 are below the government’s 6.5 to eight percent growth target.

For the Philippines to post higher growth of seven to eight percent, Staples said there is a need to improve the business environment to make it more attractive to foreign investors, with companies looking at different countries for their investments.

“I know the President has recently been traveling around, trying to get more interest in investing in the Philippines. For that to happen, you need to look at the business environment, hiring and firing people, permits to set up business, infrastructure, availability of labor, all these type of things,” he said.

He said free trade agreements like the Regional Comprehensive Economic Partnership Agreement, which the Philippines is part of, can exert pressure on members to introduce reforms to improve the business environment and reduce barriers to trade.

In terms of how a victory for former president Donald Trump in the US elections would impact the Philippines, he said Economist Impact’s Trump Risk Index showed the country is at low risk, with a score of 31.60 out of 100.

“There would be some impact, particularly around trade and security, but not as pronounced as it would be for other countries around the world,” he said.

He said the country, however, should be thinking about how to prepare for such scenario.

“Trump will probably kill IPEF (Indo-Pacific Economic Framework for Prosperity). Trump is all about transaction, right? So he doesn’t want to be tied down by big trade agreements and so on. He wants to deal individually,” he said.

The Philippines is part of the US-led IPEF, which seeks to advance resilience, sustainability, inclusiveness, economic growth, fairness and competitiveness for its member economies.