The International Monetary Fund said the Philippine economy could grow 5.4 percent this year and 5.7 percent in 2026, as it is expected to remain resilient despite losing some momentum amid external headwinds.

“The Philippine economy has achieved successful disinflation, and growth remains resilient despite negative external spillovers. Growth is expected to moderate to 5.4 percent in 2025 and accelerate to 5.7 percent in 2026, supported by monetary easing and recent legislative measures to promote private investment,” said Arbatli Saxegaard, IMF’s deputy division chief, during the conclusion of her visit to Manila for the 2025 Article IV Consultation, held from 18 September to 1 October.

“Inflation is projected to average 1.6 percent in 2025 and to stay around the mid-point of the BSP’s target band in 2026. Core inflation is expected to remain muted at 2.5 percent in 2026, in line with a slightly negative output gap. The current account deficit is projected to narrow modestly over the medium term,” she added.

The IMF official noted that risks to the growth outlook are tilted to the downside, with external risks stemming from prolonged global trade policy uncertainty, geopolitical tensions, and disruptive financial market corrections.

“On the domestic front, more frequent and intense climate shocks would cause notable macroeconomic losses. On the upside, accelerated implementation of structural and governance reforms would support investor confidence and the fiscal multiplier and raise potential growth. Risks around inflation are broadly balanced,” Saxegaard said.

She also noted that following substantial expenditure restraint in 2025, the 2026 budget targets a broadly neutral fiscal stance, which she described as appropriate given the cyclical position of the economy and the low risk of sovereign stress.

Over the medium term, she recommended that authorities continue gradual fiscal consolidation to replenish buffers and support external balance.

“The authorities should consider implementing concrete and durable tax measures to limit the need for restraint in priority spending, which tends to have a larger impact on growth and disproportionately impacts the vulnerable. Efforts to strengthen budget credibility by enhancing public financial management remain critical, including strengthening investment planning, project appraisal, selection, management, and procurement to enhance accountability,” she said.

Moreover, Saxegaard stressed that the Bangko Sentral ng Pilipinas has room for a slightly more accommodative stance to help bring inflation back to the target faster and reduce economic slack amid elevated downside risks.

“Policy will need to remain data-dependent amidst prevailing uncertainties around the output gap and the neutral rate, and two-sided risks to inflation. The exchange rate should continue to play its role as a shock absorber amid rising global volatility. The BSP’s efforts to incorporate climate considerations in monetary policy are welcome and should continue. Reforms to deepen capital markets and enhance monetary policy transmission are bearing fruit and should continue,” she added.

Overall, Saxegaard pointed out that systemic financial risks remain moderate, and the banking system has strong capital and liquidity buffers.

Nonetheless, she said vulnerabilities in the real estate sector, strong bank interconnectedness with complex conglomerate structures, and fast-growing consumer credit warrant close monitoring.

“Enhancing the macroprudential policy framework could help preempt the build-up of vulnerabilities and raise buffers. Progress to strengthen crisis management and resolution frameworks should continue,” she said.