Finding the missing link to innovation and growth

It might seem trivial that the Philippine economy grew by 5.5% in the second quarter, edging up from the 5.4% mark earlier this year.

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The Department of Economy, Planning and Development (DEPDev) celebrates our status among the fastest-growing economies in emerging Asia. Yet two pressing truths go unspoken.

First, we are still making up for lost ground from a 9.5% contraction in 2020. Second, poverty and inequality remain stubbornly high — threatening our ability to deliver meaningful investments in health, education, infrastructure, and research and development (R&D). Without investments in R&D, innovation — the lifeblood of accelerated, sustainable growth and employment — remains aspirational.

It's tempting to compare ourselves to neighbors like China, Indonesia, Malaysia, or Thailand, but such comparisons swiftly lose meaning. These countries are already well ahead in absolute GDP and per capita GNI, having advanced beyond lower-middle-income status. This is a transition the Philippines has failed to make in nearly four decades. Since 1987, we have remained in that lower-middle-income bracket, pressed now by both geopolitical headwinds and domestic fiscal constraints, including a National Government debt exceeding P17 trillion. Consequently, growth targets for 2025-2028 have been revised down by both agencies and international financial institutions including the World Bank and the IMF.

This reality resonates across the private sector. The Development Bank of Singapore recently trimmed its 2025 growth forecast for the Philippines from 5.8% to 5.6%, citing subdued consumer and business confidence. Domestic bank BPI speaks of a "new normal" growth well below the pre-pandemic average of 6.4% due to persistently high price levels and subdued job security. With weaker growth, our debt-to-GDP and fiscal deficit to GDP ratios would remain elevated as National Government debt may climb to P19 trillion by 2026.