Philippines Likely to Retain Upper-Middle Income Status Despite Economic Slowdown

The Philippines is expected to maintain its recently acquired upper-middle income country (UMIC) status despite a significant economic slowdown in the first half of 2026, according to the Department of Economy, Planning, and Development (DEPDev). However, economists caution that sustained economic weakness could erode the country's slim margin above the World Bank’s income threshold for UMIC classification.

Economy Secretary Arsenio M. Balisacan stated that the current slowdown does not threaten the Philippines’ UMIC status because gross national income (GNI) per capita remains positive. He explained that a sharp economic contraction could affect the classification, but the World Bank’s determination is not based on a single year’s performance.

In the second quarter of 2026, the Philippine economy grew by only 2.3%, a significant decline from the 5.4% growth recorded in the same period last year and the 2.8% expansion in the first quarter. This brought the first-half growth to 2.6%, falling short of the government’s revised target range of 3.5% to 4.5% for the year. Meanwhile, GNI grew by 2.2% in the second quarter, down from 8.1% a year earlier and 2.9% in the first quarter.

Despite the slowdown, ANZ Research projects a recovery in the coming quarters, forecasting 3.9% growth for the year. The research group highlighted expectations that infrastructure spending will gain momentum starting in the third quarter, which could boost capital formation and overall economic growth. Additionally, moderating inflation is anticipated to support household demand. ANZ also noted that stronger net exports and government consumption helped offset weaknesses in investment and household spending during the second quarter.

Senior Research Fellow Ser Percival K. Peña-Reyes of the Ateneo Center for Economic Research and Development agreed with Balisacan’s assessment, emphasizing that the World Bank’s income classifications rely on GNI per capita rather than quarterly GDP growth. He explained that a temporary GDP slowdown does not automatically result in losing UMIC status. However, Peña-Reyes warned that the narrow margin above the World Bank’s threshold—only $214 above the $4,636 cutoff—should be closely monitored.

He identified risks that could put downward pressure on GNI per capita, including a prolonged economic slowdown, high inflation, population growth, and unfavorable exchange rate movements. The Philippines was reclassified as an upper-middle income country after posting a record GNI per capita of $4,850 in 2025.

Peña-Reyes also pointed out that the first-half economic slowdown deserves attention because investment contracted for the fourth consecutive quarter and household consumption weakened. Gross capital formation declined by 9.2% in the second quarter, worsening from a 3.1% drop in the first quarter and reversing a 0.9% growth a year earlier. Household final consumption expenditure growth slowed to 2.8%, its lowest post-pandemic level, down from 3% in the first quarter and 5.2% a year earlier.

He cautioned that maintaining UMIC status should not be interpreted as evidence of a healthy economy or sufficient improvements in living standards. Economist Marco Antonio C. Agonia of the University of Asia and the Pacific said the UMIC classification is likely to remain unless the country experiences a severe economic contraction. However, he noted that the first-half slowdown could hinder the Philippines’ progress toward high-income status and risk falling behind regional peers without faster growth momentum.

Peña-Reyes further emphasized that GNI per capita is an average measure that does not reflect income distribution or whether ordinary Filipinos are experiencing meaningful gains in purchasing power. He suggested that the more important question is whether the Philippines can sustain strong, inclusive, and productivity-driven income growth so that the UMIC classification translates into better living conditions for its citizens.

He recalled that Balisacan himself had stressed that UMIC status is not the country’s final goal and that ongoing reforms are necessary to promote inclusive economic growth. Peña-Reyes concluded by noting that a country can remain classified as upper-middle income on paper while its population continues to face challenges such as inflation, limited job opportunities, and unequal income growth.