Moderate economic recovery seen this year

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January 9, 2026 | 12:00am

MANILA, Philippines — Metropolitan Bank & Trust Co. (Metrobank) sees a more constructive economic backdrop emerging this year as both global and local conditions gradually normalize, following a volatile 2025 marked by global policy uncertainty, soft domestic demand and weak investor confidence.

In its latest outlook, Metrobank said the Philippines is entering 2026 after a year that began with optimism but deteriorated as external headwinds intensified and domestic growth weakened.

Market jitters over policy shifts in the US spilled over to the global economy, while local conditions were further weighed down by weak activity and lingering uncertainty.

“We are now at the start of 2026, coming off a year that began with market jitters over policy shifts in the US and their spillover to the global economy,” the bank said. “Coming from a year of surprises, we are expecting a better 2026 as both global and domestic economies recover.”

The bank noted that the US government shutdown last year inflicted lasting damage on the American economy, but the outlook has since improved as US President Donald Trump’s tariff stance moderated and the US Federal Reserve moved closer to additional policy rate cuts.

“We may be entering a phase of improved economic conditions in the US and a potentially stronger dollar in 2026,” it said.

While inflation is projected to remain above the Fed’s target, downside risks to employment and cautious investor and consumer sentiment are likely to keep rate cuts on the table.

Metrobank forecasts the Fed to deliver a cumulative 100-basis-point reduction in the federal funds rate in 2026, bringing it to a terminal range of 2.50 to 2.75 percent by end-2026.

On the domestic front, Metrobank said inflation settling below the Bangko Sentral ng Pilipinas (BSP)’s two to four percent target range last year gives the central bank room to further ease policy.

The bank expects the BSP to continue its easing cycle this year and deliver a cumulative 50 basis points worth of policy rate cuts. This would bring the target reverse repurchase rate to its projected terminal level of four percent by end-2026, allowing the interest rate differential with the Fed to widen to around 125 basis points.

Metrobank said Philippine economic fundamentals are expected to gradually normalize after gross domestic product growth in the third quarter of 2025 came in weaker than expected, surprising markets amid allegations of massive corruption.

For the rest of this year, government spending is expected to remain subdued, while consumption stays weak. However, following a fiscal freeze and heightened prudence, government spending is expected to improve next year, supporting growth.

“As the BSP moves policy rates to neutral in 2026 and the investment environment improves, investment activity is expected to pick up,” Metrobank said.

Private consumption is also seen improving with anticipated increases in direct cash transfers, although gains may be capped by elevated consumer debt levels and weak sentiment linked to ongoing controversies.

Overall, the bank said these factors should allow GDP growth to strengthen this year.

Meanwhile, inflation in 2026 will likely reflect stronger demand pressures as base effects fade and the lagged impact of monetary easing takes hold. Metrobank expects household consumption to pick up, nudging commodity prices higher.

“With these, we project inflation to tread higher in 2026 compared to the average of 1.7 percent for full-year 2025,” the bank said. It sees inflation settling at 3.3 percent in 2026 and three percent in 2027.

Looking ahead, Metrobank said 2026 offers a more constructive backdrop than the previous year, supported by easing inflation pressures, a more accommodative policy environment and improving growth prospects.

“While challenges persist, particularly on the external and confidence fronts, the Philippine economy appears better positioned to absorb shocks,” it said. “This sets the stage for a gradual recovery, provided policy support remains consistent and reforms are effectively implemented,” it said.