Singapore-based United Overseas Bank (UOB) expects lower interest rates to lift Philippine economic growth in the near term, despite lingering global challenges that would likely expand the domestic economy below the government’s goal for the year.

In its Quarterly Global Outlook report for the fourth quarter of 2025, UOB hiked its 2025 gross domestic product (GDP) growth forecast for the Philippines to 5.3 percent from five percent previously.

Despite this rosier projection, the bank’s updated estimate remained below the government’s growth target range of 5.5 to 6.5 percent for this year as well as last year’s 5.7-percent economic expansion.

UOB cited the better-than-expected second-quarter GDP growth of 5.5 percent, which brought first-half expansion to an average of 5.4 percent.

“On a seasonally adjusted basis, the economy expanded by 1.5 percent quarter-on-quarter [in the second] quarter, implying underlying strength in economic activity” following the 1.2-percent quarter-on-quarter GDP growth during the first quarter, UOB noted.

“Higher household consumption was also the prime contributor of overall real GDP growth in the second quarter of 2025 on the back of easing inflationary pressures and a more accommodative monetary policy environment,” the bank said.

UOB is also more optimistic about this year’s Philippine growth prospects due to an expected “marginal impact from the 19-percent US [United States] reciprocal tariffs imposed on the Philippines (which is on par with most of its regional peers), and expectations of further monetary policy loosening by the BSP [Bangko Sentral ng Pilipinas] in the coming months to further secure economic growth.”

“The persistence of benign inflation, higher daily wages and sustained overseas cash remittance inflows are also key factors that could support domestic demand in the second half of 2025 amid lingering external uncertainties,” it added.

In a separate Sept. 5 report, UOB senior economist Julia Goh and economist Loke Siew Ting said they were sticking with their view that the BSP “will cut its policy rate by another 25 basis points (bps) in the fourth quarter of 2025 and hold it steady at 4.75 percent across 2026.”

The UOB economists projected inflation to average 1.5 percent in 2025, below the BSP’s two- to four-percent target, even as the five-month-high headline rate of 1.5 percent in August reflected an “uptrend... likely to persist through the remainder of 2025 and into 2026,” they said.

While below-target inflation would be supported by expectations of lower global oil prices, continued non-monetary policy interventions by the national government, and a stronger peso, UOB cautioned that upside risks remain from possible electricity tariff adjustments and higher rice import tariffs.

“External headwinds continue to pose downside risks to the nation’s economic growth heading into 2026. This backdrop reinforces the case for one final 25-bp rate cut in the fourth quarter of 2025... to further safeguard the country’s growth momentum in 2026,” the Singaporean bank said.

In its quarterly outlook, UOB also upgraded its 2026 GDP growth forecast for the Philippines to 5.7 percent from 5.5 percent previously, “primarily driven by resilient domestic demand on the back of stable monetary policy settings, a manageable inflation outlook, and favorable labor market conditions.”

It expects headline inflation to pick up to a still within-target 2.5 percent next year.

As for the peso, UOB forecasts the local currency to gain strength in the fourth quarter of 2025 and sustain it into 2026.

In particular, the bank expects the peso to reach the ₱56.8:$1 level during the fourth quarter, before appreciating further to ₱56.5 against the US dollar in the first quarter of 2026, ₱56.2 in the second quarter, and ₱56 versus the greenback in the third quarter of next year.

“This is largely premised on the view of broad dollar weakness, driven by the anticipated resumption of Fed [US Federal Reserve] rate cuts, the US’ deteriorating fiscal outlook, and growing concerns over the Fed’s independence as current Fed Chair Jerome Powell’s term ends in May 2026,” UOB explained.

“Domestically, the country’s economic fundamentals remain solid and supportive of the Philippine peso’s outlook. They include a low inflation environment, narrowing current account deficit and fiscal deficit, as well as possibility of wider interest rate differentials with US rates entering 2026,” according to UOB.