The skyline and business district of Bonifacio Global City in Taguig City on Oct. 4, 2024. The Organization for Economic Cooperation and Development is expecting the Philippine economy to grow by 5.6 percent this year and further accelerate to 6 percent in 2026. (PNA photo by Joan Bondoc)
The Philippine economy is poised to maintain a steady growth trajectory through 2026, fueled primarily by resilient consumer spending, according to the Organization for Economic Cooperation and Development (OECD).
Cyrille Schwellnus, who heads the OECD’s Indonesia and Philippines desk, shared during a virtual briefing on Wednesday that the country’s gross domestic product (GDP) is projected to grow by 5.6% in 2025 and pick up pace to reach 6% by 2026.
“We’re seeing stable momentum in the Philippines. Like its Southeast Asian neighbors, consumer spending continues to be the main engine of growth,” Schwellnus said.
This solid consumer demand is backed by a robust labor market, with unemployment consistently staying below 4% in recent months. Government spending also provided an early boost this year, particularly in the lead-up to the midterm elections.
While exports have shown some gains, the OECD warns that escalating global trade tensions could dampen their performance. Still, the Philippines is in a relatively better position than many of its regional peers.
“The country’s growth relies less on global trade and more on domestic demand, which cushions it from external shocks,” Schwellnus explained.
Inflation in check, room for policy easing
The OECD also sees inflation staying well within the government’s target range, creating room for the Bangko Sentral ng Pilipinas (BSP) to potentially lower interest rates. The forecast pegs inflation at a modest 2% in 2025 and 3.1% in 2026, supported by stable demand and a steady peso.
Reforms needed to sustain long-term growth
Despite the encouraging outlook, the OECD emphasized the need for structural reforms to ensure sustained and inclusive growth.
One area of concern: high electricity prices. “Reducing barriers to competition in sectors like electricity and telecommunications could help lower costs and improve services,” Schwellnus said, adding that lower electricity prices would ease the burden on both consumers and businesses while attracting more private investments.
Another key reform target is labor costs. The OECD recommends shifting part of the financing for health insurance from employer contributions to general taxation to reduce non-wage labor costs. This, combined with more flexible employment regulations, could encourage job creation in the formal sector.
“These changes would not only make it easier for businesses to hire but also open up more opportunities for workers and strengthen the country’s economic foundation,” Schwellnus concluded.