Economy resilient but faces risks to future growth

MANILA, Philippines — Despite weather events like typhoons hitting the country this year, the Philippine economy has remained strong and continues to be one of the fastest growing economies in the region.

While the government believes that the growth goal for this year could be achieved, weather disturbances and uncertainties in the global environment including proposed policies by US president-elect Donald Trump are seen posing risks to future growth.

National Economic and Development Authority Secretary Arsenio Balisacan said the economy has shown “remarkable resilience this year,” noting the 5.8 percent average gross domestic product (GDP) growth posted in the January to September period. This was despite significant weather-related disturbances or disruptions throughout the year.

He said volatile climate patterns have adversely affected agriculture, movement of goods and overall economic activity in affected areas.

“Notwithstanding these disruptions, our growth rate still positions us as one of the fastest-growing economies in Asia,” Balisacan said.

In the third quarter alone, economic growth slowed to 5.2 percent from the previous quarter’s 6.4 percent expansion and six percent growth in the third quarter of last year as typhoons destroyed crops and disrupted economic activity.

At its meeting earlier this month, the interagency Development Budget Coordination Committee (DBCC), which reviews and approves the government’s macroeconomic assumptions, adjusted economic growth targets for this year until 2028 to take into account emerging domestic and external developments.

For this year, the government revised the growth target to six to 6.5 percent from six to seven percent, previously.

Even as the economy faced domestic challenges like unfavorable weather events, the DBCC said it is optimistic that the economy can still attain the growth target for the year.

The government expects the Philippine economy to bounce back in the fourth quarter, citing the anticipated increase in holiday spending, continued disaster recovery efforts, low inflation, as well as the robust labor market.

For 2025, the government widened the growth target to six to eight percent from the previous goal of 6.5 to 7.5 percent.

The annual growth target for the years 2026 to 2028 was also adjusted to six to eight percent from the previous 6.5 to eight percent.

Uncertainties

Balisacan said the widened growth targets reflect the uncertainties expected by the government.

“We are moving in a more uncertain world. There are many domestic and external [risks],” he said.

Domestic risks include natural disasters, while external risks include developments in relation to Trump’s return as US president.

“On the one hand, if it (Trump administration) pursues what it said it would do in the last campaign, that would mean high tariffs everywhere, right? And that would reduce growth not just in the US in the longer term, but also globally because we are all part of the supply chain,” he said.

On the other hand, Balisacan said growing the US economy would also benefit the rest of the world.

Trump promised to impose tariffs on all imports, including those coming from the US’ closest trade partners.

The US is the Philippines’ top export market, with latest data from the Philippine Statistics Authority showing it accounted for $10.18 billion or 16.5 percent of total exports from January to October.

Overall inflation in the country quickened to 2.5 percent in November from 2.3 percent in October. This brought average inflation from January to November to 3.2 percent, within the government’s two to four percent target band.

In 2023, overall inflation averaged six percent.

To help contain inflation, particularly for rice, the government reduced tariffs on imports of the staple.

The Bangko Sentral ng Pilipinas (BSP) also started its easing cycle for the first time in almost four years, delivering a total of 50 basis points in rate cuts in August and October, bringing the benchmark interest rate to six percent.

Hit and miss

Economists also expect Philippine economic growth to miss the government’s growth goal for this year, but they expect the economy to post faster growth and be within target next year.

Rajiv Biswas, international economist and author of Asian Megatrends said in an email that the Philippine economy is estimated to have grown at a pace of around 5.8 percent in 2024.

“Despite underlying strong domestic demand and buoyant services exports, growth momentum was dampened by the impact of multiple typhoons which disrupted economic activity and agricultural output in the second half of 2024,” he said.

While he expects economic growth this year to be below the government’s target, he said the Philippines will continue to be one of the world’s fastest growing emerging market economies in 2025, with the economy projected to grow by around 6.5 percent.

He expects growth next year to be supported by domestic demand and services exports.

“Private sector consumer demand growth in 2025 will be supported by monetary policy easing by the BSP, as well as continued robust inflows of remittances from workers abroad, which were equivalent to around nine percent of GDP in 2024,” he said.

He said the government’s infrastructure spending will also help underpin growth in investment.

Jesus Felipe, professor at the De La Salle University School of Economics, said the economy is expected to grow by 6.2 percent in the fourth quarter of this year, bringing full year 2024 GDP growth to 5.9 percent, below the government’s growth target for this year.

“If growth goes above six percent, it means that the government has more information than the rest of us about the economy…or that it (government itself) is spending much more than in previous quarters,” he said.

For next year, he expects the economy to grow at a faster pace of 6.15 percent.

Rizal Commercial Banking Corp. chief economist Michael Ricafort also expects economic growth in the fourth quarter to be at 6.2 percent and full year 2024 growth at 5.9 percent this year.

He said the economy is expected to post higher growth of 6.3 percent next year, within the government’s growth goal.

“Easing inflation trends near the central bank target would support or justify future cuts in key policy rates or interest rates that would fundamentally lead to faster GDP or economic growth than otherwise,” he said.

He also said increased infrastructure spending would contribute to economic growth in view of election-related spending.

To achieve the growth targets for 2025 until 2028, the DBCC said the government would continue its efforts to accelerate infrastructure investments, improve the ease of doing business and boost the country’s competitiveness.

The DBCC said the government expects the recently approved CREATE MORE Act to support businesses, attract foreign investments, as well as spur higher economic growth.

As the Philippines is close to becoming an upper middle-income country given its economic performance and as growth tends to slow down for many upper middle-income countries, World Bank senior economist Jaffar Al-Rikabi said it is imperative to deepen structural reforms including developing human capital to thrive in the long run.

“It’s really important as countries get richer to really invest in upskilling their labor force,” he said, noting the country will struggle to compete if its workforce lacks necessary skills to leverage new technologies like artificial intelligence.

“So it’s very important to start investing in these types of skills that allow you to have the labor force of the future. So you need to invest today in maths and skills like that, but also in IT (information technology), computer familiarization and problem solving to allow them to be able to compete in the future,” he said.