BofA: Slowing demand to hit Philippines growth

March 1, 2026 | 12:00am

MANILA, Philippines — The Philippine economy is expected to grow below its long-term potential over the next two years as weak domestic demand, slowing private consumption and softer investment continue to weigh on activity, according to Bank of America (BofA) Global Research.

In its latest Asia Economic Weekly report, BofA said the Philippines’ gross domestic product (GDP) growth is projected at 4.6 percent in 2026 and five percent in 2027, below the country’s estimated sustainable pace of 5.5 to 6.5 percent.

The bank noted that growth momentum slowed sharply at the end of last year, with GDP expanding by just three percent year-on-year in the fourth quarter of 2025, bringing the full-year average to 4.4 percent.

“We think soft GDP growth would persist in the first half of 2026 as consumer and investor confidence may be slow to rebuild,” the report said, citing weaker household spending, softer government disbursements and declining investments as key drags on economic activity.

The report also said the burden of supporting growth may increasingly fall on fiscal policy as monetary easing approaches its limits.

While the government’s 2026 budget is seven percent higher year-on-year, the bank noted that spending patterns in 2025 were heavily front-loaded ahead of the midterm elections, creating a high base that could weigh on comparisons early this year.

It also said the infrastructure spending scandal that surfaced in the third quarter of 2025 was followed by a sharp decline in government disbursements in the second half, adding uncertainty on how quickly public spending can recover.

Still, BofA cautioned that external gains might moderate if trade diversion effects linked to recent US tariff adjustments fade over time.

On monetary policy, BofA said the Bangko Sentral ng Pilipinas (BSP) may already be close to the end of its rate-cutting cycle after reducing policy rates by a cumulative 225 basis points over the past 18 months, bringing the benchmark rate to 4.25 percent.

While the BSP has left room for further easing, the report said narrowing interest rate differentials with the US and an expected uptick in inflation could limit additional cuts.

“Unless Philippine GDP growth terribly disappoints in 2026 or the US Fed cuts by more than 50 basis points within 2026, we should not expect further policy rate cuts by the BSP from here,” the report said, adding that reserve requirement ratio reductions remain possible.

BofA expects inflation to average three percent in 2026 and 3.3 percent in 2027, while warning that price pressures may approach the upper end of the BSP’s two to four percent target band by end-2026.

The report also noted that the Philippines is among several Asian economies adjusting to a reset in US tariff structures after a ruling that invalidated certain tariff measures.