Philippines risks slowdown this year as election spending effect wanes

By Aubrey Rose A. Inosante and Katherine K. Chan, Reporters

THE PHILIPPINES risks losing economic momentum in 2026 unless reforms are carried out to extend the lift from election-related spending last year, according to a state think tank.

Growth last year has been partly driven by higher household consumption and public outlays tied to the elections, but that boost may fade once the political cycle ends, said John Paolo R. Rivera, a senior research fellow at the Philippine Institute for Development Studies (PIDS).

Without structural reforms, the economy could slow as temporary spending support unwinds, he told a webinar on Thursday.

“But for 2026, we might face post-election risks. Without reforms, momentum will fade, and sustainability depends on reforms, not on political cycles,” Mr. Rivera said.

The state think tank expects Philippine gross domestic product (GDP) to expand by 5.3% in 2026, within the government’s revised 5-6% growth target.

It also noted that Philippine GDP growth likely averaged 5% in 2025, below the government’s 5.5-6.5% target and slower than the actual 5.7% growth in 2024.

Mr. Rivera noted election years stimulate growth, but its effects are temporary and cyclical. For instance, infrastructure spending was frontloaded in early 2025 ahead of an election ban on public works.

“While fiscal expansions, such as those that we are seeing always during election periods, can temporarily stimulate the economy, and generate economic activities, they are not substitutes for structural reforms,” he said.

Mr. Rivera said good governance, transparency and accountability are needed to ensure the temporary boost from elections are converted into “durable, real and long-term gains.”

For this year, Mr. Rivera said the key headwinds or risks include a global economic slowdown and rising protectionism among developed economies.

“[Add to these] more frequent and severe climate-related shocks, fragile investment recovery, and persistent governance risk. We need to watch out for those headwinds,” he said.

At the same time, PIDS President Philip Arnold P. Tuaño said that election years in the Philippines have been associated with faster economic growth, with effects that often extend to the year immediately following the elections.

Between 2001 and 2024, average GDP growth during election years was 6.4%, compared with about 4.3% in non-election years, he said.

GDP grew by 6.9% in 2016 and 7.6% in 2022, supported by strong household expenditures and service activities, he said.

“Taken together, these studies remind us that while election years may provide temporal economic momentum, sustainable growth ultimately depends on credible governance, sound macroeconomic management, and institutions that endure beyond the political cycle,” he said.

RATE CUTS TO SPUR GROWTH
Meanwhile, recent monetary policy easing is expected to prop up domestic demand and boost growth this year, giving the Philippines an edge over its regional peers, Fitch Solutions unit BMI said.

BMI trimmed its growth forecast for the ASEAN-5 region, which is composed of Indonesia, Malaysia, the Philippines, Thailand and Singapore, to an average 3.8% for 2026, down from its earlier projection of 4.4%.

“In 2025, the ASEAN-5 benefited from the frontloading of exports,” BMI said in a report dated Jan. 12. “As this frontloading is paid back in 2026, however, we expect export growth to moderate across the ASEAN-5, weighing on regional growth.”

“However, we expect the Philippines and Indonesia to buck regional trends, with growth accelerating in 2026 as robust domestic demand offsets their relatively smaller, less-exposed external sectors,” it added.

The Fitch unit expects the Philippine economy to expand by 5.2% this year.

Also, BMI sees room for a 50-basis-point (bp) cut this year to bring the key policy rate at 4% or the lowest since August 2022.

It noted that a more accommodative monetary policy will help the economy recover from last year’s slump.

“For the Philippines, easier monetary policy will gradually feed through while infrastructure spending will rebound from the disruptions caused by the probe into misappropriated funds earmarked for flood control,” BMI said.

Severe flooding last year exposed multiple anomalous flood control projects nationwide, sparking public outrage and investigations that uncovered corruption among Public Works officials, lawmakers and private contractors behind the administration’s infrastructure program.   

The economy saw its weakest growth in over four years at 4% in the July-to-September period as the scandal slowed government spending and household consumption. As of the third quarter, GDP growth averaged 5%.

A dim growth outlook and weak investor sentiment, coupled with benign inflation, prompted the Monetary Board to deliver a fifth straight 25-bp reduction at the Dec. 11 meeting. This brought its total cuts to 200 bps since August 2024, lowering the benchmark interest rate to 4.5%.

Since then, the central bank has repeatedly said that they are approaching the end of the current easing cycle, with BSP Governor Eli M. Remolona, Jr. noting that the policy rate is already “very close” to where they want it to be.

However, Mr. Remolona left the door open for a sixth straight 25-bp cut, adding that a weaker-than-expected GDP growth could prompt them to slash key borrowing costs twice this year.

The Monetary Board is set to have its first rate-setting meeting for 2026 on Feb. 19.

Meanwhile, BMI noted that central banks across the region will likely be less aggressive in cutting rates as inflation is expected to pick up this year.

“Despite the generally less upbeat outlook for the ASEAN-5, we are still projecting fewer rate cuts in 2026, compared with 2025,” it said. “One reason is that inflation will rise back towards policy targets or long-term averages in 2026, lowering real policy rates across ASEAN-5.” 

BMI forecasts Philippine inflation to settle at 3.1% by yearend, slightly below the 3.2% seen by the BSP but at the midpoint of its 2%-4% target.