MSMEs at a critical juncture in 2026

The Philippine economy in 2026 is at a critical juncture, presenting both opportunities and challenges for micro, small, and medium enterprises (MSMEs). According to the De La Salle University (DLSU) Report on the Philippine Economy,  the country’s economic trajectory is shaped by slowing growth, governance issues, and shifting sectoral dynamics. For MSMEs, which account for 99.58% of businesses and employ most of the workforce, this environment demands resilience, adaptability, and strategic leadership to navigate obstacles and capitalize on emerging opportunities.

The Weight of Slowing Economic Growth

GDP growth is expected to slow to 4.8% in 2025, down from 5.7% in 2024 and below the government’s target of 5.5-6.5%, reflecting weaknesses in private consumption and investment. Private consumption, a major revenue source for MSMEs, is forecasted to grow by only 4.2%, dropping from 4.9% in 2024, with a sharp decline to 2.5% in Q4 2025, typically a peak spending period.

This weakened consumer demand presents significant challenges for MSMEs, particularly in retail, food, and services. However, the projected rebound in consumption to 6.3% in 2026 offers hope. MSMEs that adapt through strategic pricing, customer retention, and product innovation will be better positioned to thrive when economic activity recovers.

Governance Issues and Investment Paralysis

Governance challenges, marked by corruption scandals and delayed infrastructure projects, have eroded investment confidence. Gross fixed capital formation contracted by 1.3% in Q3 2025 and is expected to drop 2.2% in Q4, with stagnation likely to persist into 2026-2027. For MSMEs in construction and logistics, these delays have created significant barriers, limiting funding and opportunities.

Still, public expenditure is forecasted to rise by 9.6% in 2025 and 14.5% in 2026. MSMEs aligned with government priorities, particularly in supply chains and public procurement, are likely to benefit significantly when infrastructure projects resume.

Opportunities in Export Markets and Agriculture

While the domestic economy faces challenges, the external sector offers brighter prospects. Exports are projected to grow by 5.1% in 2025, accelerating to 10.4% in 2026 and 11.9% in 2027, driven by the peso’s depreciation to 59 PHP/USD, enhancing competitiveness. Export-oriented MSMEs in manufacturing, agriculture, and IT services have an opportunity to thrive by focusing on quality and market diversification.

Agriculture remains a strong sector, with growth forecasted at 3.7% in 2025 and steady expansion in subsequent years. MSMEs in agribusiness, supply chains, and agro-processing can benefit significantly by adopting sustainable practices and developing value-added products. This sector not only supports rural livelihoods but also serves as a stabilizing force for the economy.

The Resilience of the Services Sector

Despite 2025's challenges, the services sector remains stable, with growth projected at 6.1 percent and rising to 7.1 percent by 2027. Tourism, IT-BPO, and retail drive this momentum, creating opportunities for MSMEs. As global tourism recovers, hospitality businesses can meet rising demand, while digital transformation helps MSMEs enhance engagement and efficiency to stay competitive in a tech-driven market.

The Leadership Needed for MSMEs in 2026

As the Philippine economy enters 2026, the success of MSMEs will depend on leaders who can adapt to uncertainty and seize opportunities with strategic vision, innovation, and flexibility.

Given domestic consumption pressures, diversification is essential. Leaders must explore export markets and high-growth sectors such as agriculture and services to mitigate risks and capitalize on global demand. Embracing digital transformation is equally critical, as tools such as e-commerce, digital marketing, and automation are now indispensable for reaching broader markets and improving efficiency. A strong digital presence is no longer optional—it is a necessity.

Sustainability and innovation are also vital. By adopting eco-friendly practices and reimagining products, MSMEs can meet evolving consumer preferences. For instance, organic farming or value-added agricultural products can help businesses stand out in competitive markets. Financial resilience is just as important. Leaders must build cash reserves, manage cash flow effectively, and leverage government programs such as infrastructure initiatives and MSME financing schemes to sustain growth.

The challenges of 2025—slowing growth, weak consumption, and governance issues—have highlighted the need for resilience. However, opportunities in exports, agriculture, and services offer pathways for recovery. In 2026, effective leadership will require strategic thinking, digital transformation, sustainability, and financial discipline to overcome uncertainties and build the foundation for long-term success.