World Bank: Philippine Growth Slowed in 2025 but Recovery Expected by 2026–2027

The PEU highlights that urban corridors—spanning Luzon, Visayas, and Mindanao—hold significant potential to boost nationwide growth.

The Philippine economy experienced a slowdown in 2025 as a combination of domestic shocks, weakened investment activity, and subdued global demand weighed on overall performance. Despite these challenges, the latest World Bank Philippines Economic Update (PEU) forecasts a modest recovery in 2026–2027, driven largely by resilient household consumption and easing inflation.

The PEU underscores that sustaining growth in the medium term will require the accelerated execution of public investments, credible fiscal consolidation, and structural reforms that strengthen competitiveness—particularly in the tradables sector such as manufacturing, agriculture, information technology, and tourism. The report also stresses the need to harness the potential of emerging urban corridors across the country.

Slower Growth in 2025 Amid Domestic and External Pressures

Economic growth in 2025 is expected to decelerate to 5.1%, slightly below previous projections. According to the World Bank, the slowdown was driven by several key factors:

• Weaker domestic investment and declining business confidence

• A significant drop in foreign direct investment inflows

• Climatic shocks, including typhoons and flooding, which disrupted production and logistics

• Governance challenges that delayed public infrastructure spending

• Sluggish performance in services exports, especially in business support services and tourism

These combined headwinds softened economic momentum, contributing to weaker output and reduced job creation in some sectors.

Recovery Outlook: Strong Consumption and Resurging Investments

Growth is projected to rebound to 5.3% in 2026 and 5.4% in 2027. The recovery will be supported by:

• Strong private consumption as inflation remains low and employment stays strong

• Potential monetary easing, which could reduce borrowing costs for firms and households

• Renewed momentum in public infrastructure projects after earlier delays

• Positive impacts from investment liberalization reforms in telecommunications, transport, logistics, and renewable energy

If policies continue to support business confidence and reduce regulatory bottlenecks, investment activity is expected to significantly improve.

Reviving the Tradables Sector to Drive Productivity

The World Bank notes that the Philippines' recent growth has become increasingly reliant on non-tradable sectors such as construction and retail, while growth in tradables—crucial for long-term competitiveness—has stagnated.

Key structural issues include:

• Burdensome regulations limiting manufacturing job creation

• Declining numbers of exporting firms

• Weak export performance compared with regional peers

To revive the tradables sector, the report recommends reforms to:

• Strengthen competition in logistics and energy

• Digitize and streamline permits, reducing regulatory complexity

• Improve the efficiency of customs procedures

• Enhance investment facilitation mechanisms, especially for export-oriented firms

These reforms would reduce production and trade costs, enabling the Philippines to better compete regionally and globally.

Harnessing High-Potential Urban Corridors for Inclusive Growth

The PEU highlights that urban corridors—spanning Luzon, Visayas, and Mindanao—hold significant potential to boost nationwide growth. Over 60% of urban LGUs lie within these emerging economic zones, which are home to clusters of wage jobs, productive firms, and growing services.

However, to fully unlock their potential, these areas require:

• Improved infrastructure connectivity

• Strategic public and private investment

• Policies that support efficient land use, business clustering, and innovation

• Strengthened local governance and service delivery

“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.

World Bank Senior Economist Jaffar Al-Rikabi added that long-term, sustainable growth requires ensuring low-income and middle-income regions continue to grow faster than Metro Manila. Urban corridors, he said, must become engines of job creation and productivity, generating spillover benefits nationwide.

Strengthening Local Governments for Better Service Delivery

Local government units (LGUs) manage nearly 25% of public spending, making their capacity crucial to national development. The PEU argues that better frameworks for service delivery—supported by upgraded fiscal management and strengthened local institutions—will help create a virtuous cycle of investment, productivity, and rising local revenues.

Together, these reforms can help the Philippines accelerate economic growth, generate better jobs, and build a more resilient and competitive economy in the years ahead.