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דרום קוריאהGrowth rebounds after the 2026 energy crisis
The impact of the Philippines’ dependence on the Gulf for its crude oil supply (98% of imported volumes and 30% of the energy mix in 2025), exacerbated by the war in the Middle East and the blockade of the Strait of Hormuz in 2026 will result in a potential rebound of economic growth from 2027, assuming continued de-escalation between Iran and the US. Private consumption – the main driver of the economy (76% of GDP in 2025) – should consequently benefit from relative easing of energy prices, although the risk of a severe El Niño event could, conversely, drive up the cost of staple foods such as rice. It would also benefit from an increase in remittances from Filipino workers abroad, which constitute a significant source of income for many households (6.5% of GDP in 2025).
The decline in inflation is generally expected to prompt the Bangko Sentral ng Pilipinas (BSP) to gradually ease its monetary policy, following several tightening measures in 2026. This would support a recovery in household and business investment, a trend amplified by the tax incentives enacted in late 2024 under the CREATE MORE Act. Despite the fragile fiscal situation, public investment – particularly in infrastructure such as energy, transportation and telecommunications is also expected to contribute to growth, albeit more modestly, on back of support from private-sector actors and the disbursement of funds that had been delayed by the strengthening of anti-corruption measures. The Build Better More programme is the main pillar of the government’s strategy, which is based on nearly 200 flagship projects totalling approximately USD 150 billion, which will be partially financed by a sovereign wealth fund (the Maharlika Investment Fund) launched in 2023.
From a sectoral perspective, the archipelago’s growth is driven primarily by services (63% of GDP in 2025) – the Philippines is a major destination for business process outsourcing, a sector that is expected to remain dynamic – and, to a lesser extent, on manufacturing (28% of GDP), as the government’s efforts to attract more foreign direct investment (FDI), particularly in the manufacturing sector, are expected to bear fruit. On that score, the country can count on its electronics industry, particularly semiconductors, which constitute the archipelago’s main export category (53% in 2025). Conversely, the contribution of agriculture (20% of total employment in 2025) is likely to be more limited due to probable weather disruptions caused by the return of El Niño.
Fiscal consolidation delayed by soaring energy prices
Hampered by the oil shock in 2026, fiscal consolidation is expected to resume as early as 2027. The decline in government revenue (20.5% of GDP in 2025) that was due in part to slower growth, combined with increased spending (24.3%) to ease the burden on households facing rising energy prices in the shape of support for public transportation and the suspension of excise taxes on LPG and kerosene, have caused the deficit to stagnate in 2026. This situation has prompted the Philippine government to recalibrate its deficit reduction trajectory, adding approximately 0.5 percentage points to the initial annual target until 2030. Nevertheless, cuts in non-priority operating expenditures and, to a lesser extent, improved revenue collection driven by efforts to modernise the tax administration should help reboost momentum toward fiscal consolidation from 2027. This is despite limited fiscal headroom due to the dominant share of recurrent expenditures (particularly debt service and transfers to local governments), in addition to investment in human capital, agriculture, and infrastructure. Consequently, the public debt-to-GDP ratio is expected to stabilise in 2027 following a slight increase the previous year. Its favourable maturity profile, combined with low external dependence – external debt accounts for only 33% of total outstanding debt – limits sustainability risks.
Similarly, the current account deficit is expected to narrow in 2027 following a significant setback in 2026 caused by soaring oil prices, which drove up the value of imports and, in turn, harmed the trade balance. Gradual normalisation of energy prices and export growth, driven by the strength of the electronics sector, are expected to reverse the trend in 2027, although the latter will not eliminate the structural trade deficit. At the same time, the consolidation of the surplus in the services balance – supported by robust business process outsourcing activities and the ongoing recovery in tourism since the pandemic, as well as increased remittances from overseas Filipino workers – should help reduce the current account deficit. Foreign exchange reserves, although reduced by the peso’s depreciation, remain satisfactory and still covered seven months of imports in the second quarter of 2026.
Growing fragmentation of the political landscape
Domestically, the Philippine political landscape is polarised between two rival camps, that of President Ferdinand “Bongbong” Marcos Jr. (son of the eponymous dictator who ruled the country from 1965 to 1986) and of Vice President Sara Duterte (daughter of former President Rodrigo Duterte). Although elected as part of the same coalition in the 2022 elections, the heirs to the archipelago’s two main political dynasties are engaged in a growing bid for power in the run-up to the 2028 presidential election. In May 2026, the House of Representatives, which is largely loyal to the president, voted to impeach Sara Duterte for the second time in just over a year amid allegations that she attempted to assassinate Ferdinand Marcos Jr. The first impeachment claim failed on procedural grounds. Neither side holds an outright advantage in the Senate, making the outcome of the Vice-President’s impeachment trial more uncertain than its passage before the House. The rift between the two camps has been further exacerbated by the arrest by the International Criminal Court (ICC) of Rodrigo Duterte, who is suspected of crimes against humanity during his “war on drugs” – an arrest made possible by the Philippine government. The feud between the Marcos and Duterte clans is disrupting policymaking and undermining government effectiveness, just after the Philippines moved into the upper-middle-income economy category in July 2026.
Since President Ferdinand Marcos Jr. took office in 2022, the Philippines has been working to strengthen its historic ties with the US amid increasingly strained relations with China. The two allies have expanded their mutual defence agreement, with Manila granting the US military access to four additional military sites, in addition to the five original bases. For the Philippines, the move is intended to enhance security as tensions with Beijing escalate over sovereignty issues in the South China Sea while maintaining trade ties with its largest trading partner. At the same time, Manila is also developing ties with other countries in the Asia-Pacific region aligned with the US, such as Japan, South Korea and Australia, demonstrating a commitment to diversifying its economic partnerships.