Exports key for a high-income PH
The Philippines’ current growth trajectory is unlikely to be enough for the government to reach its goal of catapulting the country to high-income status by 2040.
Global consulting firm McKinsey & Co. warned of this, citing the risk of a middle-income trap.
The firm said that while resilience is important, it must be paired with bold reforms and faster production to boost exports.
The World Bank has classified the Philippines as lower middle-income since 1987.
In a recent report, McKinsey noted that current growth rates of between 5 percent and 6 percent, though respectable, are insufficient to reach high-income status by 2040.
Middle-income trap
Under a business-as-usual scenario, the firm estimated that per capita income in the Philippines would likely reach only $9,300 by then—well below the high-income threshold.
“This is the classic middle-income trap,” McKinsey said, where “growth slows before productivity, exports and incomes fully converge with those of advanced economies.”
Avoiding that outcome, the firm added, 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.
Historically, the firm noted, the Philippines’ growth has been largely inward-looking, anchored in domestic consumption.
Exports and globally competitive industries—aside from information technology and business process management—remain underdeveloped.
A model focused on domestic demand can be remarkably resilient, McKinsey said, helping the country weather major shocks like the COVID-19 pandemic.
