The Philippine economy is poised for modest recovery in early 2026 as cooling inflation and surge in local government spending offer a reprieve from the slowest year of expansion since the pandemic.

According to the latest Market Call report from the University of Asia and the Pacific (UA&P), the country’s gross domestic product (GDP) is projected to grow by at least five percent in the first quarter and maintain that pace through the end of the year.

The UA&P forecast, released Jan. 30, suggests the economy may finally claw its way back into the government’s revised target range of five percent to six percent after a disappointing 2025.

The optimistic outlook follows a year in which growth slumped to 4.4 percent, a result of stalled public and private investment following a billion-peso corruption scandal involving flood-control projects.

The slowdown culminated in a three percent expansion in the fourth quarter of 2025, matching the weakness seen in late 2011 and marking the slowest year-end performance since 2009, excluding the pandemic years.

UA&P senior economist Victor Abola and economist Marco Antonio Agonia noted that while fourth-quarter growth missed expectations, the momentum is shifting.

They attributed the expected rebound to a ₱1.6 trillion budget release to local government units and significant easing of price pressures. While high interest rates continue to weigh on private construction, the economists expect a “strong rebound” as infrastructure spending begins to normalize.

Inflation, which averaged a nine-year low of 1.7 percent in 2025, is expected to retreat further. UA&P analysts projected that headline inflation will hit 1.2 percent in January and average 1.4 percent through the first quarter, falling below the central bank’s two percent to four percent target range.

This disinflationary trend has fueled expectations that the Bangko Sentral ng Pilipinas will move to ease monetary policy. A rate cut in February appears highly likely, according to the report, which would provide much-needed support for the equities market and private sector investment.

Department of Economy, Planning, and Development Secretary Arsenio M. Balisacan indicated that while global factors like oil prices remain a wild card, the domestic environment remains stable.

His view is echoed by Standard Chartered economist Jonathan Koh, who predicts that inflation will not be a primary concern for the Philippines this year.

Koh noted that while consumer spending remains somewhat soft, headline inflation is unlikely to breach four percent in any single month of 2026, forecasting a full-year average of roughly 2.8 percent.

With the government having already downgraded its growth ambitions, the ability to hit the lower end of the five percent target will depend heavily on whether the ₱1.6 trillion in local funding can offset the lingering caution in the private sector.

For now, the combination of aggressive fiscal disbursements and a dovish turn from the central bank suggests the worst of the slowdown may be in the rearview mirror.