By Katherine K. Chan
THE PHILIPPINES’ economic expansion is ready to fall in need of official targets through 2026 as a widening graft investigation into flood control projects weighs on public spending and investor confidence, in line with Deutsche Bank Research.
“The graft probe has weighed on sentiment onshore and can likely drag growth below potential over the approaching quarters because it continues to evolve,” Deutsche Bank economist Junjie Huang said in a Nov. 22 report.
Heightened caution amongst public officials may lead to uneven disbursements at the same time as President Ferdinand R. Marcos, Jr. confirmed that unused infrastructure funds could be reallocated to priority sectors comparable to health and education, he added.
Deutsche Bank Research lowered its gross domestic product (GDP) growth forecast for next 12 months to five.1% from 5.7%, below the federal government’s 6-7% goal. “The Philippines is anticipated to see a modest growth recovery to five.1%, as private demand makes up for softer public spending.”
It cut its 2025 projection to 4.7% from 5.4%, signaling a marked slowdown from last 12 months’s 5.7% expansion.
Within the third quarter, the Philippine economy grew 4%, the slowest in greater than 4 years, because the widening corruption probe curtailed government spending and dampened household consumption.
The uncertainty surrounding fiscal policy has intensified as the federal government navigates the scandal. Deutsche Bank Research expects the budget deficit to settle at 5.4% of GDP in 2025 and 2026.
“With investigations into corruption still ongoing and the recent Cabinet reshuffle, spending plans could change over (November to December),” Mr. Huang said. The administration has reiterated that funds unspent on infrastructure could be redirected to sectors deemed critical, including health and education.
The subdued growth outlook coupled with low inflation may encourage further monetary easing.
Mr. Huang projects the Bangko Sentral ng Pilipinas (BSP) will cut the important thing policy rate by 25 basis points in December and again in February, bringing the benchmark to 4.25%, while leaving the door open for added reductions if the output gap widens.
The BSP has trimmed rates by 175 bps since August 2024, with essentially the most recent 25-bp cut in October lowering borrowing costs to 4.75% — the bottom in over three years. The central bank’s final rate-setting meeting for 2025 is scheduled for Dec. 11.
Government interventions within the rice market may help stabilize inflation. Mr. Huang forecasts headline inflation at 1.7% this 12 months, before rising to 2.9% next 12 months, inside the BSP’s 2-4% goal.
Measures include a nationwide 60-day price freeze on essentials, adjustments to rice import tariffs linked to global prices and a suspension of normal rice imports until the tip of the 12 months. The administration plans an import window in January and a tariff scheme for 2026 with rates starting from 15% to 35%.
Foreign direct investment (FDI) inflows are under pressure because the scandal sours sentiment. Fitch Solutions unit BMI said corruption concerns, combined with global trade uncertainty, are more likely to constrain FDI next 12 months.
FDI as a share of GDP fell to 1.3% within the second quarter, below the two.5% pre-pandemic average. In August, net inflows dropped 40.5% 12 months on 12 months to $494 million, the bottom since June.
The peso has weakened alongside declining investor confidence. It closed at P58.91 a dollar on Tuesday, down 4 centavos from the previous session. BMI forecasts the peso at P59 by yearend, with a possible breach of P59.50 in 2026, reflecting expectations of further BSP rate cuts.
“The corruption scandal will dampen foreign direct investment inflows into 2026, adding to pressures from macroeconomic uncertainty and global trade tensions,” BMI said in a report dated Nov. 24.
“Further depreciatory pressures lie ahead as we expect Bangko Sentral ng Pilipinas to chop rates by 25 bps in its December meeting following slower growth in (the third quarter) — bringing the US-Philippine policy rate differential back to the narrowest at 50 bps,” it added.
Meanwhile, SUN Life Investment Management and Trust Corp. expects the Philippine economy to grow 4% to five% next 12 months as governance and corruption issues cloud the outlook.
“Our prediction might be, we’ll should ride this in the following three quarters before we are able to really see any significant movement or change in direction for the general economy,” SunLife President Michael Gerard D. Enriquez told reporters late on Monday.
“Does this mean that investments will let go? Not necessarily, but I feel it would just be slow and stagnant compared with what we normally expect,” he added.
Weak investor sentiment has also weighed on the local equity market, leading to a weaker valuation on the corporate’s assets under management, Mr. Enriquez said.
Sunlife sees the Philippine Stock Exchange index (PSEi) ending the 12 months on the 6,000 level.
The PSEi fell 0.75% or 45.42 points to shut at 5,976.17, while the broader all-share index rose 1.12% or 39.64 points to three,574.82.
Mr. Enriquez said their managed assets were revalued at P425 billion from P430 billion resulting from the PSEi’s losses.
“It will have been higher but there’s a market revaluation on equities,” he said. “So, it went down since the equity market went down.” — with AMCS