Heads up! Economic growth is likely to slow down next year and inflation is expected to rise from three to four percent, according to Mark Angeles, head of research at First Metro Securities.
Angeles notes that ‘there are risks coming next year, but are manageable. But if there is no confidence, it will be exacerbated. It’s a confidence issue.’
In a breakfast briefing at the Westin Manila in Ortigas for members of the Monday Circle, Angeles pointed out that there are two economic drivers of the Philippine economy – overseas Filipino workers (OFWs) and business process outsourcing (BPOs).
Export earnings, unfortunately, Angeles admitted are ‘very small’ and so is manufacturing. Even the much vaunted semiconductor sector, Angeles pointed out, is not expected to be a big contributor to the Philippine economy since the Philippines does not have the ability to manufacture the more high value wafers.
The Philippine semiconductor manufacturing sector, he said, only makes intermediary products that require Filipino semiconductor firms to import foreign-made chips to which we add some value and then export at a higher price.
What is more concerning, according to Angeles, is the recent shutdown of two big BPOs in the country due to the advent of Artificial Intelligence.
Furthermore, he warns, revenues and salaries of existing BPO firms and workers may decrease as the BPOs experience a slow process of decline and face further threats from the move in the US to push for a bill that would force American firms to onshore or return business processing activities back to America.
But even prior to that, Philippine BPOs have been competing with the Indian BPOs which outranks our BPOs. Just recently, the Information Technology and Business Process Association of the Philippines (IT-BPAP) hosted the International IT-BPM Summit here in Manila and IT-BAP president Jack Madrid had made a wake-up call for the sector to upskill their talent as the sector faces disruption from AI.
The Business Process Management (BPM) sector, Madrid said, projects the sector to earn $42 billion next year and employ 1.97 million. That projection may not materialize if more local BPOs suddenly fold up.
The AI risk was recently highlighted by the ASEAN+3 Macroeconomic Research Office as one of the risks facing the Philippines, along with climate vulnerability.
AMRO similarly projects Philippine inflation to pick up to three percent in 2026 and growth to slow down slightly to 5.5 percent from its 2025 growth projection of 5.6 percent.
If more BPO workers are laid off and companies hire less, Angeles warned, workers from that sector are thus likely to cut down on their consumption, or rack up more debt using their credit cards.
Data recently released by the Bangko Sentral ng Pilipinas (BSP) for August this year on non-performing loans or NPLs of local banks showed a slight increase from 3.4 percent in July to 3.5 percent, an uptick that may become a problem going forward as several economic factors continue to weigh on the country.
The construction sector, which has a strong multiplier effect on the economy, has already expressed concern about the stoppage in several government projects.
Additionally, Angeles predicts that the country’s debt-to-GDP ratio will rise if President Marcos secures external funding to finance growth, even as constraints on the 2026 budget have been put in place with the removal of un-programmed financing for new flood control projects and rehabilitation of existing infrastructure projects.
Imposing additional taxes is not an option for the Marcos administration as it will be highly unpopular in the face of the current corruption issue, thus the alternative is borrowing from external sources.
Angeles boldly assesses that ‘BBM wants to spend. He wants to spend because he wants to be popular until the end…’
The debt market, Angeles admitted, is already anticipating the government’s move to borrow funds to finance growth…’that’s why the bond yields are not going down. The BSP cut rates already but you can see that bond yields are sticking at six percent because it is a supply issue now. You know there is going to be a lot of government supply coming in because they have to borrow money to fund all the projects…such as free medicare…rice…Konektadong Pinoy.. the backbone has to be supported…the government has to fund that.’
The First Metro Securities chief economic analyst believes that the corruption issue must be definitively addressed with some key personalities charged.
At the moment, Angeles said, the public is merely being ‘entertained’ by the fact-finding probe of the Independent Commission for Infrastructure (ICI) which has been sticking to its closed-door interview of private contractors, officials of the Department of Public Works and Highways and several Congressmen and Senators and resource persons.
However, just recently, the ICI has indicated that it may be willing to allow some transparency in its investigation by allowing a live streaming of some of its proceedings and holding regular press briefings.
Rep. Terry Ridon, who co-chairs the House Infrastructure Committee that was also investigating the flood control corruption at the DPWH, was also at the Monday Circle briefing.
When asked his opinion as to who would likely be most liable so far in the probe into the flood control corruption issue in so far as some members of the House of Representatives and Senate are involved, he said that it would likely be resigned lawmaker Zaldy Co and former Senate president Chiz Escudero, as well as Senators Joel Villanueva and Jinggoy Estrada, so far based on the evidence.
Not yet factored in the brew is the turmoil from the ‘Liberation Day’ tariffs which has not yet completely settled down, and may still affect the Philippines indirectly as President Trump continues to threaten China with an additional 100 percent additional tariff on top of what he had previously announced.
The tariff turmoil is affecting foreign exchange rates which would also impact the Philippines, another external factor to worry about.