The Philippines’ current growth trajectory is unlikely to be enough for the government to reach its goal of achieving high-income status by 2040, according to global consulting firm McKinsey & Co., which warned of the risk of a middle-income trap where “growth slows before productivity, exports, and incomes fully converge with those of advanced economies.”
The Philippines has been classified as a lower-middle-income country by the World Bank since 1987.
In a recent report, McKinsey noted that current growth rates of 5 percent and 6 percent, though respectable, are insufficient to reach high-income status by 2040. It said that while resilience is important, it must be paired with bold reforms and faster production to boost exports.
Under a business as usual scenario, the firm estimated that the per capita income in the Philippines would likely reach only $9,300 by then, which is well below the high income threshold.
“This is the classic middle-income trap,” McKinsey said, adding that avoiding that outcome requires elevated and sustained expansion of 6 percent to 7.5 percent or more over the next two decades.
Reaching the high-income target would also require productivity to become the primary engine of growth, accounting for roughly 47 percent of expansion by 2045.
While capital deepening and stronger labor participation will matter, McKinsey said the gap closes only if productivity drives higher output per worker. This translates human capital and capital efficiency into measurable economic gains.
The firm noted that the Philippines’ growth has historically been largely inward-looking, anchored on domestic consumption. Exports and globally competitive industries – aside from information technology and business process management – remain underdeveloped.
The Philippines’ dream of achieving high income status seems to be slipping away, especially with the war in the Middle East threatening to derail the global economy and undo all the gains that have been made.
When we do get back on track, our government has to take note of the areas that have been needing improvement, so we can work on achieving those goals, hopefully in a more inclusive and efficient manner.*
