The Economist Intelligence Unit (EIU) sees jumbo rate cuts of up to 100 basis points (bps) from the Bangko Sentral ng Pilipinas (BSP) amid lingering drags that may keep economic growth below its full potential this year.

In their latest report obtained by Manila Bulletin, EIU Asia-Pacific regional director Alex Holmes and Asia analyst Kalyani Honrao still expect Philippine gross domestic product (GDP) growth to improve only slightly, to 4.5 percent in 2026 from the post-pandemic low of 4.4 percent last year.

“The data also reaffirm our non-consensus view that the central bank will keep cutting rates in 2026, despite signaling it was close to the end of its easing cycle at its late 2025 meeting,” EIU said.

In particular, EIU forecasts the BSP to reduce the policy rate by 75 to 100 bps, from the current 4.5 percent. Most economists expect a 25-bp reduction in key interest rates when the policy-setting Monetary Board (MB) decides on the monetary policy stance on Thursday, Feb. 19.

For EIU, a sustained easing cycle “should prove crucial in helping to support household deleveraging as a prerequisite for improved consumption growth.”

While the Philippine economy’s top growth driver, household consumption, “should perform a little better in 2026,” EIU cautioned that “balance sheet repair will remain a drag.”

“The backdrop is favorable, with inflation set to remain low owing to continued falls in global oil and food commodity prices. The benefits of past and future interest-rate cuts from the BSP will continue to feed through. However, the extent to which higher disposable incomes are spent versus saved will remain the crucial variable,” EIU noted.

EIU’s estimates “assume a long tail of deleveraging to repair the lingering damage to savings and personal debt levels” due to the socioeconomic crises inflicted by the Covid-19 pandemic from 2020 to 2022.

It does not help that EIU believes government spending on public goods and services is unlikely to provide significant support to economic growth.

“Weak investment is likely to persist into 2026, driven by the freezing of projects and stalling of approvals in the wake of a corruption scandal in flood-control infrastructure... The precarious position of the President [Ferdinand R. Marcos Jr.] means that we expect the anti-corruption drive to continue, as he aims to signal a tough response (partly to rebuild his popularity),” EIU explained.

“However, that means genuine economic activity will continue to be swept up in the process,” it added.

EIU said a more restrained 2026 national budget reflects both caution toward capital expenditures amid corruption concerns and a payback from the spending surge ahead of the May 2025 midterm elections.

Also, weaker revenue due to slower growth is expected to widen the budget deficit, likely causing it to miss the 2026 target of 5.3 percent of GDP despite tighter spending controls, EIU added.

EIU also expects the external sector to remain supportive, although a slowdown in goods trade poses a key risk.

It cited that exports of both goods and services posted strong growth toward the end of 2025, with the outlook for merchandise trade hinging on regional and global economic conditions, which have modestly improved. To recall, Philippine merchandise exports hit a record high last year.

While the recent easing of visa restrictions for Chinese visitors could help boost arrivals, which have remained the main drag on tourism recovery, EIU said that a meaningful rebound is unlikely, given ongoing geopolitical tensions between Manila and Beijing as well as persistent safety concerns among Chinese travelers.