The World Bank expects the Philippine economy to grow by 5.3 percent in 2025, a slight decrease of 0.3 percentage points from the 2023-2024 average. This comes despite a robust job market, stable inflation, and supportive fiscal and monetary policies, which are helping to counter increasing trade barriers and greater financial market volatility.
The World Bank, in its Philippines Economic Update (PEU) released Thursday, said stimulating private sector growth and job creation is crucial for the Philippines to enhance inclusive growth amidst rising global uncertainty and domestic risks.
The report said unlocking the potential of the country’s business sector, particularly small and medium-sized enterprises (SMEs), would help the Philippines maintain its strong growth trajectory.
“Boosting private sector growth and job creation can help the Philippines mitigate the impact of global policy uncertainty,” said Zafer Mustafaoğlu, the World Bank’s division director for the Philippines, Malaysia and Brunei.
“This will require improving infrastructure, bridging skills gaps, implementing business-friendly policies, and mobilizing private sector capital, as public funds alone cannot meet the country’s development needs,” he said.
The report also noted that the government’s commitment to public investment and public-private partnerships is expected to sustain investment growth, with GDP projected to remain stable at 5.4 percent over the medium term.
Despite a recent rebound in consumer spending, significant challenges persist. Uncertainty in global markets has led to a deceleration in exports and foreign direct investment.
The fiscal deficit widened to 7.3 percent in the first quarter of 2025 due to higher fiscal transfers to local government units, increased interest expenses and capital outlays, which drove a jump in public spending.
“A growing policy challenge is how to manage fiscal consolidation while maintaining strong growth,” said Jaffar Al-Rikabi, the World Bank senior country economist for economic policy.
“Carefully managing expenditure disbursements will help bring the year-end deficit in line with expectations. Over the medium term, reforms to strengthen domestic revenue mobilization and improve public expenditure efficiency will enable the government to implement its medium-term fiscal framework and rebuild fiscal buffers,” he said.
The report said implementing vital reforms to empower SMEs can further boost the Philippines’ growth prospects.
SMEs account for 63 percent of the country’s total employment and contribute 36% to its gross value added. By supporting the growth of high-potential SMEs, the Philippines can unlock increased economic dynamism and resilience.
Many Philippine SMEs operate at low productivity levels and face challenges in scaling up due to limited access to finance. They export less and are less engaged in global value chains compared to their counterparts in East Asia and the Pacific, limiting their opportunities for growth through competition and technology adoption.
“Regional and global value chains are more than just sales outlets; they are platforms for creating quality jobs and more value-added through benefits from scale, increased competition, and learning,” said Jaime Frias, senior economist for the World Bank’s finance, competitiveness and innovation global practice.
“Firms that engage with international markets are generally more productive, in part because it takes high productivity to export, but also because exporting makes them more productive,” he said.
Constraints on SME export development and their integration into global supply chains include restricted access to testing facilities and certification services, limited availability of financing for equipment and quality upgrades, and insufficient market information.
The report recommends investments to make testing facilities and certification services more affordable, simplifying regulations for laboratories, and securing international recognition for Philippine certifications and standards. Investing in credit information and collateral registries can help financial institutions better understand the financial burden of SMEs, thereby lowering borrowing costs and facilitating investments in new equipment and product quality improvements.
The government can enhance firm competitiveness by promoting information sharing, benefiting both SMEs and larger companies, it said.
This involves closing information gaps by providing easy access to export market data and establishing systems to connect SMEs with larger firms and multinational corporations.
