World Bank keeps 2026 growth forecast unchanged

THE WORLD BANK kept its 2026 Philippine growth forecast but trimmed its 2027 projection as it expects external risks to weigh on economic activity until next year.

In its Philippine Economic Update released on Monday, the multilateral lender maintained its 3.7% growth forecast, within the government’s 3.5%-4.5% target for this year.

However, the World Bank now expects the economy to expand by 5.2% next year, lower than its 5.6% projection in April. This is also at the low end of the government’s 5%-6% target.

World Bank Senior Country Economist Jaffar Al-Rikabi said the slower growth trajectory

is mainly due to weaker investment amid global uncertainty and slower project execution following last year’s corruption scandal.

He also cited the Middle East conflict, which caused a negative terms-of-trade shock as surging fuel prices pushed average inflation to 4.8% in the first half.

“This explains the revision in our growth forecast for 2027 because we see that the investment climate is still quite challenging externally,” he told a media briefing on Monday.

Mr. Al-Rikabi said that although the World Bank expects infrastructure spending to accelerate by the fourth quarter, the external environment remains highly uncertain.

“We should see high execution from perhaps the fourth quarter onwards for this year. So, next year we should expect a stronger contribution to growth from public investment. But we think the external environment is still highly uncertain, highly challenging,” he added.

Mr. Al-Rikabi said external headwinds, including the Middle East conflict, would keep inflation elevated, eroding real incomes and weakening household consumption.

“In our earlier forecasts, our baseline was for a shorter conflict. Now, we’re kind of in a wait-and-see [mode] to look at its likely impact. And so, if you notice, we’ve increased our average inflation forecast,” he said.

The World Bank also sharply raised its inflation forecast for 2026 to 5.8% from 2.8% previously. It also increased its 2027 inflation projection to 3.9% from 2.8%.

Both projections would also put the headline print well above the Bangko Sentral ng Pilipinas’ (BSP) 3% target for two straight years, but slower than its 6.4% estimate for 2026 and 4.5% for 2027.

MIDDLE-CLASS SOCIETY
Meanwhile, World Bank Philippine Lead Economist Gonzalo Varela said that the Philippines could achieve high-income status by 2053 if structural reforms lift its potential growth rate to 6.8% from the current 5.4%.

Under the current potential growth rate, the country’s gross national income (GNI) per capita would reach only 73% of the high-income threshold by 2050, he said.

“If we commit to a reform plan… we estimate that growth of potential output goes from 5.4% to 6.8%. And if the Philippines manages to get there, then we get to high-income status by 2053,” he said at a briefing on Monday.

Mr. Varela said the additional growth would continue to come from investments but would require a much larger contribution from productivity.

“So, the national ambition of having a middle-class society where no one is poor is achievable within a generation. It requires a commitment to reforms and to their implementation,” he added.

Reforms include improving connectivity among regions, increasing productivity, directing resources toward more productive uses, and helping businesses take advantage of free trade agreements.

The Philippines was recently reclassified as an upper-middle income economy after its GNI per capita rose to $4,850 in 2025 from $4,470 a year earlier.

Upper-middle income economies are those with a GNI per capita of between $4,636 and $14,375, while economies exceeding $14,375 are considered high income.

Mr. Varela said the Philippines’ GNI per capita is currently equivalent to about 35% of the threshold for becoming a high-income economy.

He said sustaining rapid growth becomes more difficult at higher income levels as additional investments begin to generate diminishing returns, requiring productivity and innovation to play larger roles.

Of the 73 economies that entered the upper-middle income category over the past four decades, 50 remained in the group, while only 14 successfully transitioned to high-income status and stayed there.

“Regressions are possible, but they are more the exception rather than the rule. What we do see is that it is difficult to get out of this upper-middle income country status,” Mr. Varela said.

Meanwhile, World Bank Division Director for the Philippines, Malaysia and Brunei Zafer Mustafaoğlu said the country’s prolonged stay in the lower-middle income bracket did not necessarily mean it would take as long to reach high-income status.

“The fact that the Philippines took a little bit longer in the lower-middle income country group doesn’t mean that it will take the same [amount of time],” he said.

Mr. Mustafaoğlu cited the country’s large consumer market, stable remittance inflows and integration into Asian trade as advantages.

However, he said the pace of its ascent would depend on improvements in production, infrastructure, and human capital. — J.I.D.Tabile