THE adverse trio of tepid capital formation growth, weakness of the manufacturing sector, and governance risks could become a ‘persistent drag’ on the country’s growth and development, according to a think tank.
In its latest brief, Global Source Partners Country Analyst Diwa Guinigundo said while the Philippine economy has been resilient, given these challenges, the country needs to be more proactive in addressing its development constraints.
‘The Philippine economy has demonstrated resilience through past shocks, but resilience alone will not suffice in the face of slowing capital formation, manufacturing weakness, external imbalances, and governance risks,’ Guinigundo said.
‘Without timely and credible policy action, the ‘dark clouds ahead’ may settle into a more persistent drag on the country’s development trajectory,’ he added.
Guinigundo said data supported assessments that gross domestic capital formation (GDCF) has kept the country’s economic performance lackluster.
The latest data supported this concern, which showed that the GCDF growth slowed to only 2.4 percent in the first six months of 2025, compared to 6.6 percent in same period last year.
He added that while the recent downgrade in the country’s economic growth outlook by the International Monetary Fund (IMF) may be marginal, these are projected before the ‘full weight of global and domestic risks is felt.’
IMF projection
In a briefing in Manila on Wednesday, IMF Mission Chief for the Philippines Elif Arbatli Saxegaard told reporters that the Washington-based lender projects GDP to average 5.4 percent in 2025 and 5.7 percent in 2026.
The Development Budget Coordination Committee (DBCC) GDP target is at 5.5 to 6.5 percent in 2025 and 6 to 7 percent in the 2026 to 2028 period.
‘Although the Philippine economy remains broadly resilient, its performance in the first half of 2025 fell short of expectations. The IMF stresses that sustained policy discipline and structural reforms are essential to bolster competitiveness, attract investment, and support growth over the medium term,’ Guinigundo said.
Apart from this, he noted that the Bangko Sentral ng Pilipinas (BSP) estimates that the country’s Balance of Payment (BOP) and Current Account (CA) deficits could widen further.
The BOP is projected to post a steeper decline of 1.4 percent of GDP to a deficit of $6.9 billion for 2025 and post -0.6 percent of GDP to a deficit of $3.4 billion in 2026.
With this, the current account shortfall is expected to stay at 3.3 percent of GDP in 2025 and 2.9 percent of GDP in 2026.
‘In combination with political uncertainty linked to corruption revelations in major infrastructure projects, particularly flood control, this could undermine investor confidence and sustain depreciation pressures on the peso,’ Guinigundo said. ‘Such pressures risk amplifying imported inflation and complicating monetary policy management.’
Guinigundo said domestic price issues have also surfaced. Rice and fish prices remain elevated along with expensive pump prices, straining household budgets nationwide.
Flood, crop damage
Earlier, Department of Economy, Planning, and Development (DEPDev) Secretary Arsenio M. Balisacan said La Niña conditions, which may develop from September to December, could lead to flooding and crop damage in high-risk areas.
‘Given this backdrop, the BSP may find it prudent to hold its policy rate steady in the upcoming Monetary Board meeting, prioritizing financial stability over short-term growth support,’ Guinigundo said.
Earlier, local economists believe that faster inflation in September is not enough reason to exit its easing cycle when the Monetary Board meets next week.
On Wednesday, the BSP said it projects that September 2025 inflation will settle within the range of 1.5 to 2.3 percent. If the high end of the outlook is reached, this will be the second fastest inflation on record this year.
The Philippine Statistics Authority (PSA) will release the latest inflation print on October 7, ahead of the October 9 policy meeting at the BSP.
Ateneo de Manila University economist Luis F. Dumlao told BusinessMirror on Wednesday that the inflation projection was still within the 2 to 4 percent inflation target of the BSP.
This means, Dumlao said, the BSP has ‘space to be dovish.’ He said any reduction in policy rates will help support the country’s GDP growth.
Dumlao said the country’s GDP growth is growing slower than its natural growth of around 6.2 percent. Reducing policy rates can help boost the country’s economic performance this year.