MANILA, December 9, 2025 - The Philippine economy slowed in 2025 as domestic shocks, weaker investment, and soft global demand weighed on growth. However, a modest recovery is expected in 2026-2027, supported by resilient consumption and easing inflation, according to the World Bank's latest Philippines Economic Update (PEU).
The report highlights that sustaining growth in the coming years will require stronger execution of public investments, credible fiscal consolidation, and structural reforms to enhance competitiveness in the tradables sector (including manufacturing, agriculture, information technology, and tourism) and to harness high-potential urban corridors.
"The Philippines can leverage its strong economic foundations to implement bolder reforms that can unlock faster, more inclusive growth," said Zafer Mustafaoğlu, World Bank Division Director for the Philippines, Malaysia, and Brunei. "Removing barriers that limit investment and productivity and strengthening competitiveness can create more and better-paying jobs, expand opportunities, and reinforce economic resilience."
Growth in the Philippines is forecast to decelerate to 5.1 percent in 2025, slightly lower than previously forecast, before improving to 5.3 percent in 2026 and 5.4 percent in 2027.
The 2025 slowdown is driven by lower domestic investment, weak business confidence, a significant decline in foreign direct investment, and domestic shocks-from typhoon- and flood-related disruptions to governance concerns that have delayed public investments. Services exports have also slowed, reflecting weaker growth in business services and fewer tourist arrivals.
Growth is expected to recover over the next two years, driven by strong domestic demand. Private consumption is projected to strengthen as inflation stays low, employment remains robust, and monetary easing lowers interest rates, making it easier for businesses and households to borrow. Investment is expected to strengthen as public infrastructure projects regain momentum and recent investment liberalization reforms in telecoms, transport, logistics, and renewable energy begin to improve the business environment for firms.
Measures to revive the tradables sector could strengthen recovery. The Philippines' recent growth has tilted toward "non-tradables"-such as construction, domestic services, and retail. Burdensome regulations have kept manufacturing job creation flat, reduced the number of exporting firms, and left exports trailing regional peers.
Strengthening competition in logistics and energy, simplifying and digitizing permits, streamlining customs, and improving investment facilitation would reduce costs, attract private investment, and revive dynamism in the tradables sector, thereby strengthening the Philippines' growth outlook.
Equally important, the PEU argues that investing in and effectively managing emerging urban corridors is critical as the country advances toward upper-middle-income status. Over 60 percent of urban local government units (LGUs) across Luzon, Visayas, and Mindanao lie at the core of these high-potential corridors, where wage jobs and productive firms are concentrated. For these LGUs to reach their full potential, improved connectivity, targeted investment, and policy support are essential.
"For long-term, sustained growth, the Philippines needs to ensure that low-income and middle-income regions continue to grow faster than the National Capital Region as they have done over the past decade." said Jaffar Al-Rikabi, World Bank Senior Economist. "To do that, high-potential urban areas-urban corridors-need to be harnessed as engines of job creation and productivity that generate spillover benefits across the country."
The Philippines needs to strengthen the overall framework for local service delivery and the capacity of LGUs, which manage about one-quarter of public spending, the report added. Together, these reforms can create a virtuous cycle of investment, productivity, and local revenue growth, accelerating growth and job creation nationwide.
