Economy faces downside risks – StanChart

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January 31, 2026 | 12:00am

As sentiment weakens

MANILA, Philippines — Despite an earlier economic growth forecast of 5.7 percent for the Philippines this year, Standard Chartered Bank said there are now clear downside risks following the weaker-than-expected gross domestic product (GDP) growth in 2025.

In an economic outlook briefing, Standard Chartered Bank Asia economist Jonathan Koh said GDP growth came in much weaker than expected at 4.4 percent in 2025, down from 5.7 percent in 2024 and below the government’s 5.5 to 6.5 percent target.

“My forecast is 5.7 percent for the Philippines this year, but that was done before the fourth-quarter GDP numbers came out, so clearly there’s downside risk to that number,” he said.

 Koh said the economy’s recent performance underscores the need for a turnaround in sentiment, particularly as growth in the second half of last year was dragged down by weaker public construction spending.

“If you look at the GDP numbers for the second half of last year, it was really driven by public construction spending subtracting,” he said, citing heightened scrutiny of public capital expenditures and slower disbursements that also spilled over into private sector activity.

He also pointed to sharp weakness in investment, noting that gross fixed capital formation excluding public construction recorded its steepest year-on-year contraction outside of the pandemic years. 

“Sentiment needs to turn around before we actually see a real improvement in terms of growth,” Koh said.

Inflation, however, is expected to remain benign. Koh forecast inflation at around 2.8 percent this year, up from 1.7 percent last year, largely due to base effects.

With growth likely coming in at the lower end of the government’s five to six percent target range and inflation well within the Bangko Sentral ng Pilipinas (BSP)’s two to four percent target, Koh expects monetary easing to continue.

“I’m looking at a 25-basis-point cut in February. The risk to my call is actually one more rate cut to bring the policy rate to a terminal rate of four percent,” he said, noting that further easing is possible if growth continues to fall.

The Monetary Board reduced the target reverse repurchase rate by 25 basis points to 4.50 percent at its December policy meeting last year. The BSP has so far reduced borrowing costs by 200 basis points since it began its easing cycle in August 2024.

On the peso, Koh said Standard Chartered remains cautious relative to other Southeast Asian currencies due to structural headwinds.

“The peso is probably a currency that we are a bit more cautious on,” he said, citing risks to the business process outsourcing industry from artificial intelligence and potential US policy changes, as well as slowing remittance growth relative to GDP.