Metrobank still optimistic for 2026

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January 12, 2026 | 12:00am

The research group of Ty-led Metrobank remains optimistic that the country will be able to strengthen its growth trajectory this year even as the economy slowed down in the third quarter of last year following the massive corruption in flood control projects that resulted in a slowdown in government spending.

Contributing to the slowdown in the latter part of 2025, Metrobank’s research group observed, is a parallel decline in private consumption “to levels we last saw more than 15 years ago excluding the contraction during the pandemic.”

Although Metrobank did not elaborate on the private consumption decline, other analysts had previously commented that corruption may have fueled consumption growth in previous quarters and the exposure of the corruption has led to a dramatic drop in demand for luxury goods and for conspicuous consumption.

Thus, it said, “For the rest of this year, government spending is expected to remain subdued and consumption still subpar. Following a fiscal freeze and heightened fiscal prudence this year, government spending is expected to improve next year supporting economic growth.”

Metrobank’s research continued that this new year presents “a more constructive backdrop” compared with the previous year supported by easing inflation pressures, a more accommodative policy environment and improving growth prospects. While challenges persist particularly on the external and confidence fronts, the Philippine economy appears better positioned to absorb shocks setting the stage for a gradual recovery provided policy support remains consistent and reforms are effectively implemented,” it said.

The bank acknowledged that this year follows a year that began with market jitters over policy shifts in the US and their spillover to the global economy. “Last year, there was optimism for the Philippines which was perceived to be relatively cushioned from a gloomy global outlook. However, conditions deteriorated as the year progressed. The US government shutdown inflicted some lasting impact on the US economy. That said, as US President Donald Trump’s tariff stance moderated and the US Federal Reserve moved closer to additional policy rate cuts, the outlook for the US has turned more constructive. We may be entering a phase of improved economic conditions in the US and a potentially stronger dollar in 2026.”

For the local landscape, Metrobank’s research group said, “weak economic conditions added to the global headwinds. Toward the latter half of the year, the peso weakened further to historically weak levels as uncertainties outweighed seasonality. Coming from a year of surprises, we are expecting a better 2026 as both global and domestic economies recover.”

Following a shallow recession last year, Metrobank research said, “the US economy is expected to recover in 2026 although growth prospects remain moderate amid lingering signs of weak demand and a cooling labor market. While inflation is expected to remain above the Fed’s target this year, downside risks to the labor market driven by cautious investor and consumer sentiment are likely to keep policy rate reductions on the table.

“With current economic conditions bearing on the Fed’s dual mandate coupled with the Federal Open Market Committee’s more dovish set of voting members in 2026 led by a potentially dovish Fed governor replacing Jerome Powell, the Fed is more likely to tolerate slightly elevated inflation levels if doing so supports additional stimulus for a weakening labor market and the broader economy.”

Metrobank foresees the BSP continuing with its easing cycle this year delivering a cumulative 50 basis points or bps worth of policy rate cuts which will bring the target Reverse Repurchase Rate or RRP toward its terminal rate which it projects at four percent by end-2026 allowing the interest rate differential with the Fed to widen to 125 bps.

“With inflation having settled below the BSP’s two to four percent target range last year, inflation in 2026 is expected to move back within target largely driven by base effects,” Metrobank said. It added that within-target inflation together with still-soft economic activity and subdued consumer and investor sentiment should provide leeway for the BSP to reduce the policy rate further to its terminal rate.

Metrobank foresees the BSP continuing with its easing cycle in 2026 and delivering a cumulative 50 bps worth of policy rate cuts. This would bring the target RRP rate toward its terminal rate which they project at four percent by end-2026 allowing the IRD with the Fed to widen to around 125 bps.

As the BSP moves policy rates to neutral in 2026 and the investment environment improves, Metrobank sees investment activity picking up. Private consumption should also improve with anticipated increases in direct cash transfers from the government in lieu of the budget initially allocated for public construction. However, it said, gains will likely be capped by still elevated consumer debt levels and weak sentiment stemming from ongoing government controversies. Overall, these should allow GDP growth to strengthen this year.

Philippine inflation in 2026, it said, would likely be a story of demand-side pressure amid rebounding base effects. As the lagged impact of BSP’s monetary easing cycle takes full effect, the bank’s research group expects a pick-up in household consumption. Higher demand-side pressure may nudge commodity prices upward.

Demand-side pressure, it said, would manifest in a pickup in inflation next year, rebounding from low base effects in 2025 when inflation declined to levels below the lower bound of the BSP’s target range of two to four percent. This could be exacerbated by higher import costs associated with higher tariffs and a weaker peso moving forward.

Metrobank projects inflation to tread higher in 2026 compared to an estimated average of 1.7 percent for full-year 2025 with inflation to settle at 3.3 and three percent in 2026 and 2027 respectively. They project the dollar-peso exchange rate to trend to the upside in line with their outlook for a stronger dollar and weaker investor sentiment.