By Justine Irish D. Tabile, Senior Reporter
THE PHILIPPINE ECONOMY likely expanded at a slower pace year on year in the second quarter, as elevated inflation weighed on household spending while weak business confidence and sluggish public infrastructure spending dampened economic activity.
A BusinessWorld poll of 21 economists and analysts conducted late last week yielded a median gross domestic product (GDP) annual growth estimate of 2.8% for the April-to-June period.
If realized, this would be much slower than the 5.4% expansion in the second quarter of 2025 and match the 2.8% growth in the first quarter of this year.
This would bring the average GDP growth to 2.8% in the first half, below the government’s 3.5%-4.5% full-year target.
The Philippine Statistics Authority (PSA) will release the second-quarter GDP data on Friday (Aug. 7).
“We estimate slower growth in the second quarter where the brunt of the Middle East crisis weighed on the global economy. The Philippine economy experienced a steep run to triple-digit pump prices during that quarter, pushing average inflation for those three months to 6.8%. This likely weighed on consumption, with higher interest rate risk premia and subdued optimism putting down investment appetite as well,” University of Asia and the Pacific Economist Marco Antonio C. Agonia said in an e-mail.
Inflation averaged 6.8% in the second quarter, accelerating from the 1.4% in the same period a year ago, mainly due to high prices of fuel and food amid the Middle East conflict.
“The quarter also marked the full transmission of the US-Iran conflict to the domestic economy, with elevated oil prices and heightened geopolitical uncertainty further dampening business confidence and overall economic activity,” Bank of the Philippine Islands Lead Economist Emilio S. Neri, Jr. said in a commentary.
The country, a net importer of crude oil, has been under a year-long energy emergency since late March as the Middle East crisis threatens its fuel supply.
Oxford Economics Assistant Economist Jun Hao Ng projected 2.8% growth in the April-to-June period, citing subdued private consumption and investment.
“Investment also appears to have stayed weak, reflecting softness in both the public and private sectors. Businesses likely remained cautious about expansion amid economic uncertainty, while public infrastructure spending remained weak,” Mr. Ng told BusinessWorld via e-mail.
DROP IN CONSTRUCTION
China Banking Corp. Chief Economist Domini S. Velasquez, who expects GDP growth at 2.7% in the second quarter, said public construction activity has yet to recover.
“Public construction appears to have contracted for a fifth straight quarter amid delays in infrastructure disbursements due to tighter safeguards. At the same time, rising construction material and logistics costs likely weighed on private sector building activity,” she said in an e-mail.
BPI’s Mr. Neri said GDP likely grew by 1.9% in the second quarter, which he said would be the weakest quarterly expansion since 2009, excluding the pandemic.
“Public infrastructure spending continued to weigh heavily on economic activity, contracting by 43.4% year on year in the second quarter after a 45.4% decline in the first quarter amid ongoing project delays and slower-than-expected budget execution. Private investment likely softened further, evident in weaker building permit approvals and subdued business sentiment as firms adopted a more cautious stance amid the policy uncertainty,” Mr. Neri said.
The latest data from the Department of Budget and Management showed that infrastructure and other capital outlays fell by 35.3% year on year to P80.1 billion in May. In the first five months, these outlays declined by 42.9% to P269.4 billion.
Pantheon Macroeconomics Chief Emerging Asia Economist Miguel Chanco said he expects headline annual GDP to slow to 1.8% in the second quarter, as public spending remains stagnant.
“If our below-consensus projection proves to be correct, then we wouldn’t be surprised if there was another downgrade in the government’s growth target for 2026, given how weak the first half has turned out to be,” he said in an e-mail.
GROWTH DRIVERS
Meanwhile, Moody’s Analytics Economist Sarah Tan said merchandise exports growth should have contributed to GDP growth, although momentum may have slowed from the first quarter due to “global trade uncertainty and heightened geopolitical tensions.”
HSBC ASEAN Senior Economist Aris D. Dacanay, who forecast 2.7% growth, said goods exports, particularly semiconductors, provided support for economic growth.
“With roughly two-thirds of its exports in semiconductors and electronics, the Philippine economy is, to some extent, enjoying the gains brought by the AI (artificial intelligence) boom. Risks, however, are tilted to the downside, with global demand for services exports weakening amid the uncertain global economic environment,” he said in an e-mail.
Philippine merchandise exports grew by 13.1% in the first half to $46.72 billion from $41.31 billion in the same period a year ago, after electronic product exports jumped by 20.7% to $26.1 billion.
Marites M. Tiongco, a professor at De La Salle University’s Carlos L. Tiu School of Economics, said she expects GDP to grow by 3.6% in the second quarter, citing stronger manufacturing output, some recovery in agriculture and continued services expansion.
Manufacturing output, as measured by the volume of production index, grew by 11.7% year on year in April and 10.2% in May, preliminary PSA data showed.
“This suggests that industry recovered from its slight contraction in the first quarter, supported in part by electronics, food manufacturing and other export- and domestic-market-oriented activities,” Ms. Tiongco said in a Viber message.
Ms. Tiongco said agriculture may have seen a “modest recovery,” citing the increase in palay and corn production, as well as agricultural exports.
“Nevertheless, the sector remained vulnerable to weather disturbances, high fertilizer and fuel costs, and disruptions affecting fisheries and logistics,” she said.
However, Ms. Tiongco said the weakness in the jobs market relative to the previous year may have dragged second-quarter growth.
“The unemployment rate was 4.7% in April and 4.8% in May, compared with 4.1% and 3.9%, respectively, during the corresponding months of 2025… These indicators suggest that household income and employment conditions were not sufficiently strong to generate a robust consumption-led expansion,” she said.
EL NIÑO THREAT
Several economists said the government’s full-year growth target remains achievable, although this will require stronger GDP expansion in the second half.
Maybank Economist Azril Rosli, who forecast second-quarter growth at 2.7%, expects full-year growth to settle at 3.5%, at the lower end of the government’s target.
“Achieving this target will require a stronger rebound in economic activity over the second half of the year, supported by an acceleration in domestic demand and investment,” he said in an e-mail.
Mr. Rosli said continued infrastructure spending, resilient remittances and a gradual easing of inflation could support a firmer recovery if energy prices stabilize.
S&P Global Market Intelligence Principal Economist Harumi Taguchi expects the Philippines to post a full-year GDP growth of 4.2%.
“The main downside risks are persistently high oil prices, supply disruptions related to the US-Iran conflict, and continued weakness in investment,” Ms. Taguchi said in an e-mail.
However, Mr. Agonia said the Philippines’ second-half recovery will face “immediate headwinds such as resurgent tensions in the Middle East, minimum wage increases, and the threat of an aggressive El Niño season.”
“Elevated interest rates may also cast a shadow on medium-term growth prospects. Second-half performance will likely depend on more benign external conditions, faster rollout of government spending, and recovery of consumer and business sentiment,” he said.
Ms. Tan, who sees full-year economic growth at 3.8%, said El Niño poses a key downside risk as it impacts agricultural production and food inflation.
“A weaker global economy and persistent trade uncertainty could also weigh on exports and private investment,” she added.
