By Katherine K. Chan, Reporter
THE PHILIPPINES could post the fifth-slowest growth in Southeast Asia this year as weak investment and elevated inflation weigh on economic activity, while unemployment is expected to rise more than previously forecast, the International Monetary Fund (IMF) said.
In its latest World Economic Outlook (WEO) released on Tuesday, the IMF expects Philippine gross domestic product (GDP) to grow by 3.4% this year, slowing from the post-pandemic low of 4.4% recorded in 2025.
This puts the Philippines behind most economies in the Association of the Southeast Nations (ASEAN). Vietnam is projected to post the fastest growth at 8.4%, followed by Malaysia (5.2%), Indonesia (5.1%), Singapore (5%), Lao People’s Democratic Republic (4.5%), and Timor-Leste (4%).
The Philippines is only expected to outpace Cambodia (3%), Thailand (2.1%), Myanmar (2%), and Brunei (1.9%) this year.
Philippine economic growth remained muted this year as the Middle East war-driven energy crisis amplified the lingering effects of the flood control mess. In the second quarter, GDP grew by a new post-pandemic low of 2.3%, bringing the first-half expansion to 2.6%.
However, the IMF expects the Philippine economy to regain momentum next year, but still below its growth potential.
“The Philippines is projected to grow by 5.1% in 2027, recovering from 3.4% in 2026,” an IMF spokesperson said in an e-mail.
“This is a robust recovery — thanks to the still elevated Philippines growth potential—which allows (the) Philippines to maintain a relatively strong pace compared with many ASEAN peers next year. However, (it is) still relatively lower than its growth potential.”
If this holds, the Philippines will be the second fastest-growing economy in ASEAN in 2027, matching Indonesia and trailing only Vietnam with 7.5%.
MAIN RISKS
For the IMF, the Philippines could rebound once confidence picks up and the energy shock fades to gradually steer investments back to the country.
However, the Washington-based multilateral lender said the economy may remain below its potential until next year if the investment backdrop remains bleak and consumer prices stay elevated.
“The main risks are renewed delays in public infrastructure investment, persistently high energy and food prices, and weaker investor confidence,” the IMF spokesperson said. “Restoring public investment while strengthening governance will be key to making the recovery durable.”
Economic managers are targeting 3.5%-4.5% GDP growth this year and 5%-6% next year until 2030.
The IMF noted that the Bangko Sentral ng Pilipinas (BSP) continues to face a challenging balancing act as weak growth complicates its inflation-targeting monetary policy framework.
“Higher inflation combined with weaker growth creates a difficult trade-off for monetary policy, one faced by many central banks today,” the IMF spokesperson said. “Monetary policy must prevent temporary price shocks from turning into persistent inflation, without unnecessarily weakening economic activity.”
Inflation has been heated since the Middle East war erupted in late February, sticking above the central bank’s 3% target for a seventh month in a row.
Renewed price shocks from food, fuel, and utilities drove the headline print to a three-and-a-half-year high of 7.2% in September, matching this year’s peak first seen in April.
The BSP began tightening in April, with its third straight 25-basis-point (bp) hike in August raising the policy rate to 5%.
BSP Governor Eli M. Remolona, Jr. has said that they could keep hiking the benchmark rate as needed to cool inflation down to target, with the severe El Niño and inflation expectations among their top considerations.
“With inflation expectations broadly anchored and substantial spare capacity in the economy, further tightening should depend on persistent inflationary pressures or stronger second-round effects,” the IMF said.
“Over the longer term, improving food and energy security will be essential to reducing the Philippines’ vulnerability to future shocks,” it added.
The IMF forecasts Philippine inflation to end at 5.6% this year before easing to 4.1% next year.
HIGHER UNEMPLOYMENT
Meanwhile, the IMF sees the Philippines’ jobless rate rising faster amid the economy’s dismal growth this year and slow rebound next year.
“Changes in employment typically lags the ones in business activity during cycles,” its spokesperson said. “So, the upward revisions reflect a sharper-than-expected slowdown in economic activity this year and a slower rebound next year.”
Based on its latest WEO, the multilateral lender sees the country’s jobless rate climbing to 5.4% this year from its 4.7% estimate in April.
According to the IMF, employment in sectors vulnerable to the contraction in public construction and weaker private investment will likely be hit harder.
Tighter labor market conditions may also be driven by high energy costs straining household spending and business confidence, which has dampened job creation, it added.
Latest data showed the country’s unemployment rate worsened to 5.3% in August from 3.9% a year earlier, but improved from 6% in July. This pushed the average jobless rate as of August to 5.2%.
By 2027, the IMF said the country’s unemployment rate may ease to 5.2%, but higher than its previous 4.6% forecast, on improved economic activity.
“But the relatively slow improvement highlights the importance of reviving investment and creating more productive, better-paying jobs to reduce also underemployment,” it added.
On the other hand, the IMF projects the Philippines’ current account deficit to swell to -4.8% of GDP this year from its previous -4.4% forecast as high energy prices bump its import bill.
“Most of the current account fluctuations are driven by the energy and food import bill as exports remain resilient,” the multilateral lender said.
Still, the deficit is expected to narrow to -3.6% of GDP next year, although slightly wider than IMF’s -3.5% estimate in April, as commodity prices fall and fiscal consolidation boosts public savings.
For the IMF, the Philippines could keep posting a current account gap even after the energy crisis subsides, although noted that the concern lies more on its “size, persistence, and how it is financed.”
“The Philippines benefits from adequate foreign reserves and manageable external debt, but persistently large deficits increase exposure to external shocks,” its spokesperson said. “Over the medium term, reducing these vulnerabilities requires stronger export competitiveness, supported by better infrastructure, and higher domestic savings, including through stronger government revenues.”
The IMF said attracting more foreign direct investment would provide “a relatively stable source of external financing and, particularly in export-oriented sectors, boosting exports and strengthening the external position over time.”