While the Philippines is poised to be among the region’s growth leaders, Moody’s Analytics expects this year’s economic expansion would not reach even the lower end of the government’s target.
“I think the Philippines kind of stands out as one of the fastest-growing economies in Southeast Asia,” Moody’s Analytics economist Sarah Tan said during the Moody’s Corp. subsidiary’s Asia-Pacific economic outlook virtual report on Wednesday, March 26.
Despite this, Moody’s Analytics lowered its forecast for the country’s gross domestic product (GDP) growth performance this year, which Tan sees at 5.9 percent. She expects this growth to move even slower in 2026, at 5.8 percent.
“While the expected growth is shy of the government’s target [of six to eight percent], it will mark the strongest expansion in three years,” Tan noted. Last year, the country’s GDP expanded by 5.6 percent, unchanged from the 2023 figure.
Previously, Moody’s had forecast the local economy to grow by six percent, falling within the lowest end of the target.
However, Tan noted that given the Philippines’ domestic drive, the slowdown is relatively modest compared to other emerging economies in the region.
Tan stressed that a large portion of the country’s growth will come from the “strength of its domestic economy, given that it’s highly reliant on its private consumption.”
“This year, we are expecting inflation to ease further and interest rates to go down even more and so that will boost private spending and investment,” Tan said.
She added that “a tight labor market and a healthy inflow of remittances will also give consumption a boost.”
At present, the key borrowing rate remains at 5.75 percent after the Bangko Sentral ng Pilipinas (BSP) paused the easing cycle. Year to date, the central bank has yet to reduce interest rates.
Aligning with consensus expectations, Tan sees a 50-basis point (bp) reduction in the policy rate this year, bringing the key borrowing cost to 5.25 percent by year-end.
On March 25, BSP Governor Eli Remolona Jr. signaled the resumption of the easing cycle, with a quarter-point cut seen to be carried out at the April 10 policy meeting.
Additionally, the latest 2.1-percent inflation figure in February was the slowest in five months.
Tan said the central bank “faces a tough balancing act to maintain price stability and economic growth. Progress on the inflation front supports the case for more rate cuts.”
She also noted that, unlike Thailand and Indonesia, the Philippines would not be severely scathed by United States (US) President Donald Trump’s protectionist policies. By degree, the impact of the returning US president’s policies will not be as large as it does to other economies.
Tan explained that “the Philippines’ export reliance is pretty small, especially compared to other Southeast Asian economies.”
“But the reciprocal tariffs or any tariffs that come from the US will definitely hurt the Philippines’ exporters, only because the US is the largest export destination for the Philippines,” Tan warned.
But overall, Tan said global trade policies are “unlikely to leave a huge dent on the macroeconomy, but it will definitely hurt these exporters and manufacturers.”
“As US tariffs could slow global demand and the pace of interest rate normalization, the Philippine central bank will be more cautious about monetary easing to avoid significant weakening of the peso,” she further said.