By Justine Irish D. Tabile, Senior Reporter
THE PHILIPPINES is unlikely to lose its newly attained upper-middle income country (UMIC) status despite the sharp economic slowdown in the first half, the Department of Economy, Planning, and Development said.
However, economists warned that prolonged weakness could erode its narrow buffer above the World Bank’s income threshold.
Economy Secretary Arsenio M. Balisacan said the slowdown does not pose difficulties in keeping UMIC status.
“Oh no, not at all, because, in per capita terms, gross national income (GNI) is still positive,” he told reporters on Friday.
“If the economy contracts sharply, it could (affect the country’s status). But even the determination of our classification is not based on one year’s performance,” he added.
The economy expanded by only 2.3% in the second quarter, lagging the 5.4% year-earlier growth and the 2.8% expansion in the first quarter, bringing first-half growth to 2.6%, below the government’s revised 3.5%-4.5% target for 2026.
On the other hand, GNI grew 2.2% in the three months to June, against 8.1% a year earlier and the 2.9% posted in the first quarter.
Despite the weaker growth track, ANZ Research expects the economy to recover in the coming quarters, forecasting 3.9% growth this year.
“The authorities expect infrastructure spending to gain momentum from the third quarter. If this materializes, capital formation and overall growth could begin to recover in the coming quarters,” it said.
ANZ said moderating inflation will likely support household demand. It noted that stronger net exports and government consumption helped cushion weakness in investment and household demand in the second quarter.
Ser Percival K. Peña-Reyes, Ateneo Center for Economic Research and Development Senior Research Fellow, said Mr. Balisacan’s assessment was technically sound because the World Bank’s income classifications are based on GNI per capita rather than quarterly GDP growth.
“A temporary slowdown in GDP does not automatically mean the Philippines will lose its classification,” he said via Facebook Messenger.
However, Mr. Peña-Reyes said the narrow margin above the World Bank threshold should be considered.
“A prolonged slowdown, high inflation, population growth or unfavorable exchange-rate movements could eventually put downward pressure on GNI per capita,” he said.
The Philippines was recently reclassified as an upper-middle income country by the World Bank after it posted a record GNI per capita of $4,850, only $214 above the World Bank’s $4,636 threshold for upper-middle income economies.
The first-half slowdown also deserves attention as investment contracted for a fourth consecutive quarter and household consumption weakened, Mr. Peña-Reyes said.
Gross capital formation contracted 9.2% in the second quarter, worsening from the 3.1% decline in the first quarter and reversing the 0.9% growth a year earlier.
Household final consumption expenditure growth slowed to a post-pandemic low of 2.8% from 3% in the first quarter and 5.2% a year earlier.
“Maintaining UMIC status should not be treated as proof that the economy is healthy or that living standards are improving sufficiently,” Mr. Peña-Reyes said.
University of Asia and the Pacific economist Marco Antonio C. Agonia said the UMIC classification is likely to remain in the absence of a severe economic contraction.
“The first-half slowdown could impact the country’s bid to grow towards high-income status,” he said in an e-mail to BusinessWorld.
“Barring any severe economic contractions, we may be able to keep our UMIC standing but risk lagging even more compared to our neighbors in the absence of faster growth momentum.”
Mr. Peña-Reyes also cautioned that GNI per capita is an average and does not show how income is distributed or whether ordinary households are experiencing meaningful improvements in purchasing power.
“In my view, the more meaningful question is not simply whether the Philippines will remain a UMIC, but whether the Philippines can sustain strong, inclusive and productivity-driven income growth so that the UMIC classification translates into better lives for ordinary Filipinos,” he said.
He noted that Mr. Balisacan himself had emphasized that UMIC status was not the country’s final destination and that the government must continue pursuing reforms to make economic growth more inclusive.
“A country can remain ‘upper-middle income’ on paper while its citizens still struggle with inflation, weak job opportunities or unequal income growth,” Mr. Peña-Reyes said.
