MANILA, Philippines — A new report from global consulting firm McKinsey & Co. warns that the Philippines is at risk of falling into a “middle-income trap” unless it shifts its economic focus from domestic consumption to aggressive exports and higher productivity.
The Philippines has been classified as a lower middle-income country by the World Bank since 1987. According to McKinsey, the current trajectory is not enough to reach the government’s “AmBisyon Natin 2040” goal of becoming a high-income nation.
- The Growth Gap: The country’s current growth rate of 5% to 6% is respectable but insufficient. To reach high-income status by 2040, the economy must sustain an expansion of 6% to 7.5% or more for the next two decades.
- Income Projection: Under a “business-as-usual” scenario, per capita income is estimated to reach only $9,300 by 2040—falling short of the high-income threshold.
- Export-Led Growth: Historically, Philippine growth has been “inward-looking,” relying heavily on local spending. Aside from the IT-BPM (Business Process Management) sector, globally competitive export industries remain underdeveloped.
- Productivity as an Engine: McKinsey argues that 47% of economic expansion by 2045 must be driven by productivity (output per worker). This requires better capital efficiency and the transformation of human capital into measurable economic gains.
- Bold Reforms: Resilience, which helped the country survive the pandemic, must now be paired with bold reforms to speed up production and integrate more deeply into global supply chains.
While the domestic-demand model has made the Philippines resilient to global shocks, it limits the country’s potential to converge with advanced economies. The report stresses that without a “productivity-led” model and a surge in non-service exports, the country may see its growth slow down before incomes can fully catch up to international standards.