Corruption to weigh on Philippine growth until 2027

PHILIPPINE ECONOMIC GROWTH may continue to undershoot the government’s targets until 2027 amid the ongoing flood control corruption scandal, Capital Economics said.

In a report on Monday, the think tank said it projects gross domestic product (GDP) growth to settle at 4% this year, well below the government’s 5.5-6.5% target.

Capital Economics sees Philippine GDP to gradually pick up to 4.5% in 2026 and 5% in 2027. However, these are still below the country’s 6-7% targets.

“The corruption scandal that has engulfed the Philippines will continue to weigh on growth over the coming quarters and is likely to trigger a few more rate cuts from the BSP,” Capital Economics Senior Asia Economist Gareth Leather said in a report on Monday.   

Meanwhile, ANZ Research sees the Philippine economy expanding by 4.8% this year as the National Government continues to tighten its belt amid the ongoing probe into public infrastructure projects. 

In its ANZ Research Quarterly for Q1 2026, it trimmed its GDP growth estimates for the Philippines to 4.8% for 2025 from 4.9% previously.

“In Malaysia and the Philippines, the implied impulse for 2026 is negative,” ANZ Research Chief Economist for Southeast Asia and India Sanjay Mathur said. “In fact, our concern for the Philippines is that budgeted spending may not be realized as governance-related issues lead to greater scrutiny.”

In the third quarter, the country’s economic growth slumped to 4%, the slowest expansion seen in over four years or since the coronavirus disease 2019 (COVID-19) pandemic.

In the nine-month period, GDP growth averaged 5%, below the government’s 5.5-6.5% target.   

A wide-scale controversy linking Public Works officials, lawmakers and private contractors to multibillion-peso corruption in anomalous flood control projects dragged government spending and household consumption.

Government spending fell for a third straight month in October to P430.6 billion, down 7.76% from the P466.8-billion expenditure recorded a year ago.

Still, ANZ kept its growth forecasts for 2026 and 2027 at 5% and 5.6%, respectively.

Meanwhile, the think tank lowered its inflation forecast for 2025 to 1.6% from 1.8%.

For next year, it sees inflation accelerating back to the central bank’s 2-4% target at 2.4%, slower than its earlier projection of 3%. It also trimmed its estimate for 2027 to 3% from 3.2%.

Capital Economics likewise forecasts inflation to settle at 1.6% by yearend, before picking up to 2.3% next year and 3% in 2027.

The benign inflation outlook supports the case of further monetary policy easing.

“There is also plenty of scope for monetary policy support,” Mr. Leather said. “With inflation set to stay low, we think the central bank will deliver a couple more interest rate cuts.”

The Monetary Board last week cut the key policy rate by 25 basis points (bps) for a fifth straight meeting to 4.5%. This brought its total reductions to 200 bps since it began its easing cycle in August 2024.

Bangko Sentral ng Pilipinas (BSP) Governor Eli M. Remolona, Jr. has said they might end the current easing cycle with a final 25-bp cut next year depending on economic data.

ANZ Research expects the BSP to deliver one last 25-bp reduction next year, while Capital Economics sees a terminal rate of 4% with the first cut likely to come within the first quarter.   

The Monetary Board is scheduled to have its first meeting next year in February. — Katherine K. Chan