Fitch Ratings expects Philippine economy to expand by 5.6% in 2025

Private demand should be supported by easing inflation and interest rates, the rating agency said in a release.

Domestic political uncertainty could affect investment, while global trade tensions will likely drag on growth, in particular indirectly through weaker global demand, it observed.

It recently affirmed the Philippines' long-term foreign currency Issuer default rating (IDR) at 'BBB' with a stable outlook.

The rating and outlook reflect the Philippines' strong medium-term growth, which supports a gradual reduction in government debt-to-gross domestic product (GDP) ratio, and the large size of the economy relative to 'BBB' peers, the release said.

The rating is constrained by low GDP per head, despite an upward trend, the rating agency said in a release.

Governance standards are weaker than those of 'BBB' peers, though Fitch believes World Bank Governance Indicator (WBGI) scores somewhat overstate this.

The Philippines is a relatively closed economy, with goods exports of only about 12 per cent of GDP in 2024. Over 16 per cent of goods exports were to the United States.

If the reciprocal tariffs announced by the US in April come into effect, the relatively low tariff rate of 17 per cent applicable to the Philippines could be an advantage compared with regional peers, Fitch noted.

The country’s terms of trade could benefit from lower commodity prices or diversion of Chinese exports.

Fitch still forecasts real GDP growth to pick up to over 6 per cent in the medium term, more than double the projected 'BBB' median, but broadly in line with the Philippines' growth in the decade before the COVID-19 pandemic.

The forecast reflects a payoff from investments in infrastructure and a series of structural reforms in recent years to liberalise the economy and foster trade and investment, including through public-private partnerships.

Technological change poses risks to the Philippines' large outsourcing sector, although it is adapting, the rating agency noted.

It expects the general government (GG) budget deficit to narrow to 3.6 per cent of GDP by 2026, after a Fitch-estimated 4.6 per cent in 2024 and a peak of 5.4 per cent in 2022.

The improvement will be driven mainly by spending efficiencies and improved tax collection, with limited new tax measures planned.

Risks are skewed towards slower consolidation, given the government's overriding focus on growth and a less permissive domestic political environment.

It expects the current account (CA) deficit to remain broadly unchanged in 2025-26 after widening to 3.8 per cent of GDP (about $18 billion) in 2024, from 2.8 per cent in 2023, mainly on a strong pick-up in travel debits.

Strong domestic demand, partly related to public infrastructure development, will continue to drive import growth, offset by lower hydrocarbon import prices and growth in remittances and service exports.

The Philippines is financing CA deficits through long-term external borrowing and foreign direct investment, but this is gradually eroding its external position, making it a net external debtor in 2024, in line with the 'BBB' median, it added.

Fibre2Fashion News Desk (DS)