Moody’s sees rebound in Philippines growth this year

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February 24, 2026 | 12:00am

MANILA, Philippines — Moody’s Ratings expects Philippine economic growth to rebound to 5.5 percent in 2026 and 5.6 percent in 2027, but warned that higher debt servicing costs, the need for new revenue measures and slower public spending could weigh on the recovery.

In a report, Moody’s said that one of the country’s credit strengths is its high gross domestic product (GDP) growth potential supported by favorable demographics alongside moderate government debt burden compared with peers.

“Overall, growth will be underpinned by resilient consumption and steady remittance inflows, while a gradual recovery in public investment will provide additional support, resulting in projected real GDP growth of 5.5 percent in 2026 and 5.6 percent in 2027.

The projected rebound follows a slowdown in 2025, when the Philippine economy expanded by 4.4 percent, slower than the 5.7 percent growth in 2024, as investment activity weakened amid global uncertainty, weather-related disruptions and delays in public project execution.

Moody’s said “investment weakness – amid the ongoing probe into flood control projects, weather-related disruptions and global uncertainty – weighed on economic activity,” noting that gross fixed capital formation, which includes investments in roads, grew by just 0.5 percent year on year.

Still, the rating agency expects growth momentum to gradually improve as public investment recovers.

However, it cautioned that the rebound may take time, as the recovery in public spending is assumed to begin only in the second half of 2026.

“Any delays or implementation mishaps would pose additional downside risks to near-term growth,” Moody’s said.

Inflation is also projected to remain close to or within the central bank’s two to four percent target. This, along with softening economic growth, “continues to provide room for a broadly accommodative stance in the near term,” it said.

On the fiscal side, Moody’s said consolidation remains gradual, with the government targeting a narrower national government deficit of 4.3 percent of GDP by 2028 from an estimated 5.6 percent in 2025.

While the target is achievable, the debt watcher said sustaining fiscal improvements may require additional policy action.

“Further consolidation will be challenging without new revenue measures, despite the Philippines’ track record on recent tax reforms,” Moody’s said.

The agency added that debt affordability remains a key constraint, with general government interest payments expected to stay at around 12 percent of revenues in the near term, higher than pre-pandemic levels, before gradually normalizing as refinancing conditions improve and growth returns to trend.

The debt watcher also said political risks remain contained despite domestic tensions and ongoing investigations linked to flood control projects. It also cited persistent geopolitical tensions in the South China Sea, although the risk of significant escalation is seen as limited given strong economic ties and continued engagement efforts.

Despite these risks, Moody’s maintained that the Philippines’ credit profile remains supported by strong macroeconomic management, stable funding access and a well-capitalized banking system.