Return to over 5 percent growth in Q1, full year 2026 seen

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February 2, 2026 | 12:00am

MANILA, Philippines — The Philippine economy may return to above five percent growth in the first quarter and full-year 2026 as government spending improves and inflation is likely to remain low, according to the University of Asia and the Pacific (UA&P).

“We expect Q1 (first quarter) and full-year GDP (gross domestic product) growth to exceed five percent,” UA&P said in The Market Call Capital Markets Research report for January 2026.

It said it expects a strong rebound in the current quarter, following the government’s early release of the P1.6 trillion budget to local government units (LGUs).

The Philippine economy closed 2025 with average growth of 4.4 percent, slower than the 5.7 percent expansion in 2025 and below the government’s 5.5 to 6.5 percent growth target.

GDP growth also slowed to three percent in the fourth quarter last year from 3.9 percent expansion in the previous quarter and 5.3 percent growth in the same period in 2024.

The slower economic growth was linked to flood control corruption issues which weighed on investor and consumer confidence, and unfavorable weather conditions which disrupted economic activity.

UA&P said infrastructure spending is expected to remain subdued as high interest rates are likely to limit private construction.

However, it said inflation remains a bright spot that would support growth in the first quarter this year.

“Inflation is expected to drop further, reaching 1.2 percent year-on-year in January,” UA&P said.

Inflation rose to 1.8 percent in December last year from the previous month’s 1.5 percent.

This brought average inflation for 2025 to 1.7 percent, below the government’s two to four percent target.

For the first quarter of this year, UA&P said it expects inflation to average 1.4 percent.

Given the latest growth outturn and inflation result, UA&P expects the Bangko Sentral ng Pilipinas (BSP) to bring down the key policy rate this month.

At its last policy meeting in December last year, the BSP trimmed the key interest rate by 25 basis points to 4.50 percent.

“A BSP policy rate cut appears very likely in February, which should provide a boost not only to the bonds and equities markets, but also for businesses in general and private construction, in particular,” UA&P said.