Domestic economy is bracing for protracted slowdown this year as eroding consumer confidence, cooling global trade, and the lingering fallout from corruption scandal threaten to stifle the Philippine recovery.

Moody’s Analytics warned in a report released Monday, Feb 2, that the outlook for the Philippines has darkened significantly.

The research firm cautioned that deteriorating international trade environment is poised to sap export momentum, while domestic demand remains hampered by a crisis of confidence in public policy execution.

Moody’s Analytics’ warning follows a lackluster 2025, where the country’s economy, as measured by the gross domestic product (GDP), expanded by just 4.4 percent, the weakest full-year performance since the pandemic lockdowns.

Last year’s growth rate missed both the government’s target of 5.5 percent to 6.5 percent and Moody’s Analytics’ own five percent projection. The slowdown was exacerbated by a billion-peso flood-control corruption scandal that paralyzed both public and private investment.

Economic managers have already lowered their expectations, revising the growth target for 2026 to a range of five percent to six percent.

Moody’s noted that while inflation plummeted to a nine-year low of 1.7 percent in 2025, the central bank’s efforts to stimulate the economy through rate cuts have yet to revive household spending.

Private consumption remained sluggish through the final quarter of last year, suggesting that cheaper credit alone is insufficient to offset broader economic anxiety.

Government spending, a traditional driver of the Philippine economy, has stalled as authorities grapple with findings of misuse of funds in infrastructure projects.

Moody’s suggested that this loss of faith has likely bled into the private sector, where a decline in capital formation highlights concerns that weak governance is deterring investors.

While the Philippine Statistics Authority (PSA) is scheduled to release January consumer price data on Feb. 5, Moody’s has already raised its inflation forecast for the month to two percent, citing slight uptick in food and beverage costs.

Exports emerged as the sole bright spot in an otherwise bleak landscape. Despite the headwinds of higher United States tariffs, Philippine shipments reached a record 84.41 billion pesos in 2025, a level not seen in more than three decades.

Total goods exports surged 23.3 percent in December alone, driven by a rebound in electronics and the US reclaiming its position as the country's top trading partner.

However, Moody’s warned that because exports represent a smaller fraction of the economy compared to household consumption, this external strength is unlikely to compensate for the deepening malaise at home.