December 17, 2025
MANILA – The Philippines is on track to end the year as one of Asia’s weaker economic performers, as an expanding anticorruption campaign weighs on investor confidence and disrupts public spending.
In a note to clients, the London-based research firm Capital Economics said Vietnam, Taiwan and India were likely to remain among the region’s strongest performers, while Thailand and the Philippines were expected to lag.
The outlook points to further monetary easing in the Philippines, where subdued inflation could give the Bangko Sentral ng Pilipinas (BSP) ample room to stay dovish. Capital Economics predicted two additional quarter-point interest rate cuts, which would bring the benchmark rate to 4 percent by the end of 2026, from the current three-year low of 4.5 percent.
The firm said such measures would be needed to support an economy that it expected to grow by just 4 percent this year amid a widening corruption scandal and a “struggling” export sector. Meanwhile, Capital Economics expected Thailand to grow by a much weaker pace of 2.1 percent.
“The corruption scandal that has engulfed the Philippines will continue to weigh on growth over the coming quarters and is likely to trigger a few more rate cuts from the BSP,” Capital Economics said.
“On a positive note, the authorities have pledged to restart infrastructure projects which would reverse some of the recent weakness in the economy,” it added. “There is also plenty of scope for monetary policy support.”
President Marcos’ economic team earlier signaled that official macro targets may need to be revised to account for the fallout from an escalating antigraft drive.
The probe has widened to include lawmakers, Cabinet members, government engineers and private contractors, hitting confidence and squeezing public spending at a time when the economy is counting on domestic demand to cushion against mounting global risks.
BSP
To “compensate” for the effects of the graft fallout, the BSP slashed the overnight borrowing rate, guiding bank lending costs by another quarter point at its final policy meeting for the year. Governor Eli Remolona Jr. said any further rate easing next year—if it comes at all—is likely to be limited to a single 0.25 percentage point reduction.
“We now expect central banks in Indonesia, the Philippines and Thailand to further lower rates incrementally. The Philippines and Thailand will likely continue to experience negative output gaps, whereas Indonesian policymakers are keen to push GDP growth beyond 5 percent through policy support,” economists at ANZ Research said.
“In Malaysia and the Philippines, the implied impulse for 2026 is negative. In fact, our concern for the Philippines is that budgeted spending may not be realized as governance-related issues lead to greater scrutiny,” they added.
Separately, Miguel Chanco and Meekita Gupta, economists at Pantheon Macroeconomics, said political risk likely will remain elevated, and could even worsen, in Thailand and the Philippines.
Infra projects
“The high-profile anti-corruption drive in the Philippines involving public infrastructure projects likely will continue to weigh on an economy already struggling with a lethargic household sector, as well as depressed and backsliding private capex plans,” they said.
“The BSP likely will continue cutting to a terminal rate of 4.25 percent, especially with inflation unlikely to rise back into its 2 to 4 percent target range until mid-2026,” they added.