Market insights

The Philippine economy has maintained its spot as one of the fastest growing economies in the region, bouncing back from the challenges of COVID with a growth rate of 5.6% in 2023 and 2024.

Household consumption continues to be the main engine of the Philippine economy, accounting for 60 to 70% of GDP growth each year. This strong consumption has been fueled by the following:

• Favorable demographics: The country has a young ang growing population, which is expected to reach 115 million by 2025.
• Remittances: The amount of remittances sent by OFWs grew by around 3% in 2024 and is equivalent to around 8% of GDP. The number of OFWs deployed abroad has exceeded the pre-pandemic level, with 2.3 million deployed in 2023.
• Unemployment rate at record low: The country’s unemployment rate has declined significantly in the past 2 years, even reaching historic lows. From a 17.6% during the height of the pandemic, the unemployment rate is now around 3.2%, below the 5.3% level before COVID.

The Philippine economy is expected to grow at a faster pace in 2025 with household consumption as the biggest driver. Consumer spending is expected to show stronger growth this year with inflation now at manageable levels. This improvement will likely be most apparent in discretionary spending after a period of slower growth caused by high inflation, as consumers focused more on essentials.

The economy also stands to benefit from the recent reduction in interest rates and provision of additional liquidity via cuts in the reserve requirement ratio. Private sector spending in construction activities has not yet returned to pre-pandemic levels, but lower interest rates may fast track its recovery. Moreover, as household consumption strengthens, businesses are likely to increase capital spending to meet growing demand.

Election spending is another tailwind that could provide a boost to the economy. Historically, GDP growth is faster in election years, driven by heightened economic activity fueled by election-related spending in various regions.

A major downside risk to growth is geopolitical risk, which may disrupt supply chains and drive inflation higher.

Inflation is expected remain within the BSP’s target in the coming months, assuming no unexpected supply shocks. Upside risks to this outlook include the possibility of La Nina and disruptions to global supply chains due to trade barriers. Inflation remains sensitive to adverse weather conditions, particularly for vegetable prices, which warrant close attention. On the other hand, stable commodity prices amid China’s economic slowdown and improving rice supply may offset these risks.