By Aubrey Rose A. innocente And Katherine K. chan, reporter
The Philippines is at risk of losing economic momentum in 2026 unless reforms are made to stem last year's surge in election-related spending, according to a state think tank.
John Paolo R., a senior research fellow at the Philippine Institute for Development Studies (PIDS). The increase last year was partly driven by higher household consumption and public outlays linked to the elections, but that increase may taper off after the political cycle ends, Rivera said.
Without structural reforms, ending temporary spending support could slow the economy, he said in a webinar on Thursday.
“But for 2026, we may face post-election risks. Without reforms, momentum will fade, and stability depends on reforms, not political cycles,” Mr Rivera said.
The state think tank expects Philippine gross domestic product (GDP) to grow by 5.3% in 2026, which is within the government's revised 5-6% growth target.
It also said Philippine GDP growth is likely to average 5% in 2025, below the government's 5.5-6.5% target and slower than the actual 5.7% growth in 2024.
Mr. Rivera said election years stimulate growth, but its effects are temporary and cyclical. For example, infrastructure spending was boosted as early as 2025 ahead of an election ban on public works.
“While fiscal expansions, such as we always see during election periods, can temporarily stimulate the economy, and generate economic activity, they are not a substitute for structural reforms,” he said.
Mr Rivera said good governance, transparency and accountability were needed to convert temporary gains from the elections into “sustainable, real and long-term gains”.
For this year, Mr Rivera said the key headwinds or risks included a global economic slowdown and increasing protectionism among developed economies.
“[Add to these] More frequent and severe climate-related shocks, fragile investment recovery, and persistent governance risks. We need to be careful about those headwinds,” he said.
At the same time, PIDS Chairman Philip Arnold P. Tuanos said that election years in the Philippines are associated with rapid economic growth, the effects of which often extend throughout the year Immediately after the elections.
Between 2001 and 2024, he said, the average GDP growth rate during election years was 6.4%, while in non-election years it was about 4.3%.
He said GDP was expected to grow by 6.9% in 2016 and 7.6% in 2022 due to strong domestic expenditure and services activities.
“Overall, these studies remind us that election years can provide temporary economic momentum, but sustainable growth ultimately depends on credible governance, strong macroeconomic management, and institutions that last beyond the political cycle,” he said.
Rate cuts to boost growth
Meanwhile, recent monetary policy easing is expected to boost domestic demand and boost growth this year, giving the Philippines an edge over its regional counterparts. Friends, Fitch Solutions unit BMI said.
BMI lowered its growth forecast for the ASEAN-5 region, made up of Indonesia, Malaysia, the Philippines, Thailand and Singapore, to an average of 3.8% for 2026. Down from its earlier estimate of 4.4%.
“In 2025, ASEAN-5 benefit from frontloading of exports,” BMI said in a Jan. 12 report. “As this frontloading is paid off in 2026, however, we expect export growth in ASEAN-5 to remain moderate, which will weigh on regional growth.”
“However, we expect the Philippines and Indonesia to buck regional trends, with growth accelerating in 2026 as strong domestic demand balances their relatively smaller growth.” Less exposed outdoor areas,” it added.
The Fitch unit expects the Philippine economy to expand 5.2% this year.
Moreover, BMI sees scope for a 50-basis-point (bp) cut this year to bring down the key policy rate 4% or the lowest since August 2022.
It said a more accommodative monetary policy would help the economy recover from last year's recession.
“For the Philippines, easy monetary policy will be implemented gradually, while infrastructure spending will pick up due to investigations into misuse of funds allocated for flood control,” BMI said.
Last year's devastating floods exposed a number of unusual flood control projects across the country, sparking public outrage and investigations that revealed corruption among public works officials, lawmakers and private contractors behind the administration's infrastructure program.
The economy saw its weakest growth of 4% in four years in the July-to-September period as the scandal slowed government spending and household consumption. In form of GDP growth rate in the third quarter averaged 5%.
The subdued growth outlook and weak investor sentiment as well as benign inflation prompted the Monetary Board to make a fifth consecutive 25-bp rate cut at its December 11 meeting. This takes its total cut to 200 bps from August 2024, bringing the benchmark interest rate down to 4.5%.
Since then, the central bank has repeatedly said that they are nearing the end of the current easing cycle, with BSP Governor Eli M. Remolona, Jr. saying that the policy rate is already “very close” to where they want to keep it.
However, Mr Remolona left the door open to a sixth consecutive 25-bp cut, and said lower-than-expected GDP growth could prompt him to cut key borrowing costs twice this year.
The Monetary Board is ready to take its first steps Rate-setting meeting for 2026 on Feb. 19.
Meanwhile, BMI noted that central banks across the region will be less aggressive in cutting rates as inflation is expected to rise this year.
“Despite the generally less upbeat outlook for ASEAN-5, we still project a lower rate cut in 2026 than in 2025,” it said. “One reason is that inflation will move back toward policy targets or the long-term average in 2026, driving real policy rates lower in the ASEAN-5.”
BMI estimates that Philippine inflation will stabilize at 3.1% by the end of the year, slightly lower than the 3.2% seen by the BSP, but at the midpoint of its 2%-4% target.