A deepening corruption investigation is increasingly shaping the Philippines’ economic trajectory, prompting analysts to flag weaker growth prospects and further pressure on policymakers to sustain monetary support.
London-based Capital Economics said the Philippines and Thailand are expected to underperform much of Asia this year, in contrast to economies such as Vietnam, Taiwan and India, which it described as the region’s stronger performers. The research firm projected Philippine growth at just 4 percent, citing disruptions linked to a widening graft scandal and continued weakness in exports.
“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.
According to the firm, soft inflation conditions leave the Bangko Sentral ng Pilipinas with room to maintain an accommodative stance. Capital Economics forecast two additional 25-basis-point rate cuts that would lower the benchmark rate to 4 percent by the end of 2026, from the current 4.5 percent, already at a three-year low.
While the anticorruption campaign has unsettled investors and slowed public spending, Capital Economics noted that authorities have signaled plans to revive stalled infrastructure activity. “On a positive note, the authorities have pledged to restart infrastructure projects which would reverse some of the recent weakness in the economy,” the firm said. “There is also plenty of scope for monetary policy support.”
The probe has expanded to include legislators, senior officials, government engineers and private contractors, weighing on confidence at a time when domestic demand is expected to offset growing global risks. President Ferdinand Marcos Jr.’s economic team has previously indicated that official growth targets may need adjustment to reflect the fallout from the crackdown.
In response to the economic drag, the BSP cut its overnight borrowing rate by another quarter point at its final policy meeting of the year. Governor Eli Remolona Jr. said any additional easing in 2026—if pursued—would likely be limited to a single 25-basis-point reduction.
Regional economists have echoed concerns over the Philippines’ outlook. Analysts at ANZ Research said central banks in Indonesia, the Philippines and Thailand are expected to continue trimming rates gradually, noting that both the Philippines and Thailand are likely to face persistent negative output gaps.
“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,” ANZ Research said.
Pantheon Macroeconomics economists Miguel Chanco and Meekita Gupta also warned that political risk in the Philippines is likely to stay elevated. “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.
They added that inflation dynamics could keep the central bank on an easing path. “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 said.
