Two main challenges facing the Philippines in achieving continued economic growth are climate risk and the advent of Artificial Intelligence (AI), according to economists at the ASEAN+3 Macroeconomic Research Office (AMRO).
During an online press briefing held yesterday by the AMRO on its ASEAN+3 Financial Stability Report (AFSR) 2025 and the ASEAN+3 Regional Economic Outlook (AREO) October update, chief economist Dr. Dong He and lead economist Runchana Pongsaparn, retained their growth forecast for the Philippines at 5.6 percent this year, and 5.5 percent in 2026.
However, they explained that if their forecast materializes, growth would be on a downward trend from 2024’s GDP growth of 5.7 percent partly because of weaker exports, just like other countries in the region, where the impact of the new US tariffs will kick in toward the end of the year and next year.
Fortunately, though, the AMRO economists expressed optimism that consumption in the Philippines will continue to grow steadily, supported by the strong labor market, lower inflation and by the still robust remittances.
However, Pongsaparn noted that private investment and sentiment, and export performance are the ones that would probably post moderate growth because of the external uncertainty related to the US tariff adjustments.
In terms of the corruption scandal, she said, ‘I think we would have to see, to what extent it is actually going to affect the wider economy, because if the event is short-lived and then it does not severely affect the investment sentiment, then that could be contained, and may not affect the growth forecast materially. So, we still wait and see the overall impact.’
Dr. He, for his part, commented that after concluding AMRO’s consultation visit last month with the Philippines, ‘In terms of the macro level, I think the Philippines economy actually has been performing quite well. Growth has been steady. The issue is that there has been a downward shift in the growth trajectory as compared to pandemic levels. Pre-pandemic, the Philippine economy was growing much faster. So, the challenge, really, is while maintaining short term stability, how do we lift the medium term growth to higher levels?
‘And there, I think, the conclusion of the consultation is that, investment should really be much higher to underpin the productive capacity in the medium term. It’s both public spending and public investment, and private investment, that should prepare the Philippine economy for two major shocks that could arise going forward.’
The first shock, he cited, is climate risk. ‘The Philippines, because of its geography, is quite exposed to climate risks. So, infrastructure has to be strengthened, some of these issues with flooding have to do with the infrastructure not being able to deal with these shocks, and that, you know, can be strengthened much further.’
The second shock, he continued, has to do with the Philippines’ service oriented economy which ‘plays an important role in service exports. For example, business processes, call centers and all these for major global corporates, the Philippines provides very good services there. But looking in the age of AI, how do we upgrade these services? And so that would require also upscaling of the human resources’
Additionally, Dr. He highlighted the role of public and private investments which he said must also be addressed to ‘prepare the Philippines economy for these big challenges ahead.’
The AMRO AFSR and AREO update highlighted the region’s broad resilience in the face of heightened uncertainties driven by US trade policy shifts and geopolitical tensions.
Growth in the ASEAN+3 region is projected at 4.1 percent in 2025 and 3.8 percent in 2026, an upward revision from July’s forecast, supported by robust first-half performance and stronger-than-expected export momentum as market pressures have gradually eased since peaking in April following the announcement of the ‘Liberation Day’ tariffs.
‘While intra-regional trade and domestic demand have become increasingly important growth drivers across ASEAN+3, the region remains deeply connected to the global financial system and is therefore not insulated from global shocks,’ said Dr. He. ‘Overall, the region’s financial system remains resilient, although pockets of vulnerabilities persist.’
Export-oriented corporate sectors – particularly smaller firms with high exposure to US demand – may face pressures on profit margins amid shifting trade dynamics.
Despite these challenges, ASEAN+3 economies remain well-positioned to navigate global headwinds. Well-calibrated policy mixes and strong fundamentals – including robust banking systems, deepening financial markets, ample foreign reserves and available policy space – have provided critical buffers.
With inflation largely subdued and expectations well-anchored in most economies, central banks can maintain accommodative monetary policy to support growth.
At the same time, macroprudential tools, along with foreign exchange and capital flow management measures, offer additional safeguards to maintain financial stability and mitigate external spillovers.
However, AMRO underscores that support should be carefully targeted to vulnerable sectors and deployed prudently to preserve policy space amid elevated external uncertainty.
Beyond near-term risks, the region is undergoing deeper structural transitions. Most notably, the rapid digitalization of financial services presents opportunities for greater financial inclusion and efficiency, while also introducing new challenges to financial stability.
‘Digitalization of the banking sector is reshaping the market structure, offering new pathways for inclusion and efficiency,’ said Pongsaparn, even as she qualified, ‘But it also alters the nature and distribution of financial stability risks. Policymakers must adopt a multi-pronged strategy that promotes innovation while managing risks, calibrated to the maturity of each market segment.’
As ASEAN+3 manages near-term uncertainties, AMRO emphasizes the importance of reinforcing policy frameworks, improving transparency, and deepening domestic markets and buffers to mitigate spillover risks from external shocks.
Dr. He concluded: ‘With coordinated actions and deeper financial cooperation and integration, ASEAN+3 can turn today’s challenges into tomorrow’s opportunities, and emerge stronger, more connected and more resilient.’