The Philippine economy is poised to expand at a rate below its historical potential this year as the fallout from stagnant investment environment continues to weigh on domestic activity.

In a briefing on Friday, Jan. 30, Jonathan Koh, Standard Chartered economist and foreign exchange (forex) analyst for Asia, warned that growth may cool to five percent in 2026, a downward shift following the release of disappointing data for the prior year.

The revised outlook comes a day after the Philippine Statistics Authority reported that gross domestic product (GDP) grew by just 4.4 percent in 2025.

Last year’s figure represented the weakest full-year performance since the Covid-19 pandemic and was largely attributed to a freeze in both public and private capital outlays following a corruption scandal involving billion-peso flood-control projects.

Koh that while his official forecast currently sits at 5.7 percent, the risks are now firmly tilted to the downside.

He noted that the 5.7 percent projection was based on fourth-quarter 2025 figures not yet finalized. Given the current momentum, he suggested a move toward five percent is increasingly likely.

If the economy expands at the 5.7 percent rate Koh originally projected, it would still sit within the government’s revised target range of five percent to six percent.

However, reaching the upper bound of that target or the country’s six percent potential growth rate will require a significant rebound in investor sentiment. Koh said that transparency and accountability remain the primary hurdles to restoring confidence.

Department of Economic Planning and Development Secretary Arsenio Balisacan earlier noted that while the economy’s baseline potential remains 6 percent, consistent investments in infrastructure and human capital could eventually push that ceiling to seven percent. For now, however, the focus remains on stabilization.

The Bangko Sentral ng Pilipinas has already moved to bolster the economy, having slashed policy rates by 200 basis points.

Koh described current monetary conditions as relatively supportive and expects the central bank to deliver another 25-basis-point cut in February.

With inflation trending within the two percent to four percent target range, there is ample room for further easing.

Koh indicated that if growth threatens to dip below the five percent threshold, the central bank may be forced to act more aggressively than markets currently anticipate, potentially aiming for a terminal rate of four percent.

Despite the headwinds, Koh noted that fiscal policy remains expansionary. He also played down concerns regarding the local currency, stating that the central bank maintains sufficient reserves to prevent a sharp depreciation of the peso.

The administration appears aware of the sentiment gap, Koh added, suggesting that policy steps are being taken to address the underlying causes of the investment slowdown.