The Philippines needs to turn fast growth into productive growth
Ahead of the 2026 IMF-World Bank Annual Meetings in Bangkok, the Philippines arrives with an economic track record that many emerging markets would envy.
With an average annual GDP growth rate of 5 percent over the past twenty-five years—two percentage points higher than the global average—its economy has more than tripled in size, now accounting for 12.8 percent of the output of the Association of Southeast Asian Nations (ASEAN). Over the same period, employment has grown faster than the working-age population—and income among the poorest 40 percent has risen faster than that of the richest 20 percent.
These gains were driven largely by favorable demographics, a shift toward services, and the country’s emergence as a leading outsourcing destination for information technology-business process management (IT-BPM). Yet ASEAN’s third-largest economy faces a central challenge: it has been much better at generating growth than at generating productivity gains.
According to the World Bank, more than 90 percent of the Philippines’ economic growth since 2010 has come from capital accumulation. Meanwhile, total factor productivity contributed less than 10 percent, and the contribution from human capital was insignificant. Such a growth model can sustain expansion for a time, but it is unlikely to deliver the productivity gains needed for the Philippines to escape the middle-income trap.
Manila faces a high-stakes balancing act
Manila’s external economic position creates both vulnerability and opportunity in addressing this challenge, especially as US-China great power competition mounts. In 2025, the United States was its largest export market accounting for about 16 percent of its total exports, while China was the country’s largest trading partner, accounting for nearly 22 percent of its total trade and supplying more than 28.4 percent of its imports. This leaves the Philippines closely tied to US demand and technology on one side and Chinese imports and supply chains on the other.
The exposure is particularly acute in electronics, which generated $45.9 billion, or 54.3 percent of exports, in 2025. Rising tariffs, export controls, and technology restrictions could raise costs and disrupt production. At the same time, supply-chain diversification through a “China plus one” strategy creates an opening to attract investment in semiconductors, electronics, and advanced manufacturing. Capturing this opportunity, however, will require more than a balancing act between Washington and Beijing.
More than 75 percent of the country’s trade is concentrated in the United States and East Asia, leaving it highly vulnerable to regional and geopolitical shocks. Manila should therefore prioritize new trade and investment partnerships with other major economies, including the European Union. It must also address structural headwinds—such as its infrastructure gap, energy costs, logistics, skills, and regulatory predictability—to compete with other ASEAN economies such as Vietnam, Malaysia, Thailand, and Indonesia, which face many of the same challenges and opportunities as geoeconomic fragmentation and US-China tensions deepen.
Domestic constraints add to the pressure
The Philippines’ external vulnerabilities are compounded by significant structural vulnerabilities—and few are more consequential than climate and energy. Typhoons already impose annual losses equivalent to about 1.2 percent of GDP, while climate change could reduce GDP by as much as 13.6 percent by 2040 without sufficient action. Energy dependence compounds that exposure: the country imports almost all of its oil and roughly 80 percent of its coal, with energy imports costing nearly $17 billion, or 17 percent of its total import bill, in 2025. Reducing fossil-fuel dependence while investing in resilient infrastructure and domestic renewable energy is therefore not simply a climate priority—it is central to the Philippines’ energy security, fiscal resilience, and competitiveness.
Beyond climate and energy, several other domestic constraints continue to hold back the country’s ability to translate growth into higher productivity. Three stand out.
First, three-quarters of new jobs have been created in less productive, non-tradable sectors, while an informal workforce averaging around 16 million workers, or nearly one-third of all employment, continues to undermine productivity and innovation in the long-run. Second, high infrastructure costs weigh on firms, with logistics expenses estimated at roughly 27 percent of firm revenues, while regulatory complexity and limited competition constrain investment and exports. Third, high electricity prices, linked in part to aging infrastructure and limited generation capacity, have become a serious obstacle to long-term industrialization.
Addressing these constraints will require stronger investment in infrastructure, human capital, competition, energy, and private-sector productivity. Without these steps, the Philippines risks limiting the productivity gains needed to sustain its growth and move up the value chain.
Turning economic clout into productivity
The Philippines combines a globally competitive services industry, an established electronics manufacturing base, favorable demographics, a vast diaspora and sizable remittances, and large renewable-energy potential. Together, these assets give Manila several pathways to a more productive, export-oriented, and technology-intensive economy—and, ultimately, higher-value growth:
- Semiconductors and electronics: Electronic products generated $45.9 billion, or 54 percent of Philippine exports, in 2025. As global supply chains diversify, the Philippines can attract more investment in the sector while moving beyond assembly and testing toward advanced packaging, chip design, and research and development.
- Digital services: The Philippines is one of the world’s leading IT-BPM hubs, with the industry generating more than $40 billion in revenues and employing about 1.9 million workers in 2025. Artificial intelligence (AI) poses a risk to some existing jobs but also offers an opportunity to move the industry toward higher-value services in analytics, finance, health care, cybersecurity, and other professional services.
- Demographics: With nearly 117 million people, 55 percent under the age of thirty and only 6 percent above the age of sixty-five, the Philippines has an important advantage as much of East Asia ages. Capturing this demographic dividend will depend on greater investment in human capital, technical skills, and workforce productivity.
- Diaspora: An estimated 11 million Filipinos live and work abroad, providing a powerful economic connection to the world. Personal remittances approached $40 billion in 2025, or more than 8 percent of GDP. Better investment vehicles could help channel this financial and human capital into greater domestic investment, entrepreneurship, and knowledge transfer.
- Renewable energy: The Philippines has significant geothermal, solar, hydropower, and offshore wind resources, including an estimated 894 gigawatts of technical wind potential. Developing these resources could reduce dependence on imported energy, ease pressure on fiscal space, strengthen energy security, and improve the reliability of energy supplies, helping Philippine industries become more productive and competitive with their ASEAN neighbors.
The challenge is turning these advantages into higher-value investment and better-paying jobs at home. And realizing that potential will depend on more than domestic investment. Manila will also need to navigate intensifying US-China strategic competition and a more fragmented global economy. That means diversifying trade and investment partnerships while preserving enough economic flexibility to pursue its own development priorities.
A productivity agenda for Bangkok
Against this backdrop, Manila should use the 2026 IMF-World Bank Annual Meetings in Bangkok to advance three key priorities:
- Diversify supply chains in semiconductors, electronics, and advanced services.
- Secure partnerships for education, digital skills, and AI readiness.
- Mobilize private capital for renewable energy, climate, and infrastructure projects.
The stakes are high. The World Bank estimates that reforms to the country’s human capital, connectivity, competition, and private investment could lift long-term growth by 1.4 percentage points, create 5.1 million additional high-paying jobs by 2040, and raise real wages and, therefore, domestic aggregate demand by nearly 13 percent.
The Philippines has already demonstrated that it can grow. The challenge now is to ensure that its next phase of growth delivers something harder and longer-lasting: higher productivity, greater resilience, and better jobs at home.
Amin Mohseni-Cheraghlou is a macroeconomist with the Atlantic Council’s GeoEconomics Center, a senior lecturer in economics at American University, and a faculty affiliate at Columbia University.
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Image: Construction of new buildings in Manila. Source: REUTERS/Romeo Ranoco.