Philippine growth unexpectedly slows in Q1 as inflation risks rise
Philippine growth unexpectedly slowed in the first quarter, leaving the country a laggard within the region and challenging policymakers trying to cool inflation and support the peso.
Gross domestic product rose 2.8% in the January-to-March period from a year earlier, the Philippine Statistics Authority said Thursday. That’s lower than the 3.3% median forecast in a Bloomberg News survey and below the 3% pace of the previous quarter. Household consumption, a pillar of the economy, grew by the slowest pace in nearly 16 years outside the pandemic.
The impact of the war in the Middle East, which has spiked energy prices, compounded the effects of a long-running graft scandal and slowness in agreeing on a 2026 budget, said Economic Planning Secretary Arsenio Balisacan.
“These challenges are real and the Marcos administration is confronting them directly and decisively,” he said, referring to President Ferdinand Marcos Jr. “Restoring public trust and strengthening institutional credibility remain among the Marcos administration’s highest priorities.”
The peso pared gains after the data, which showed that investment fell 3.3% in the quarter, and industrial production edged down 0.1%. Consumer spending rose 3% from a year earlier, while government spending gained 4.8%. Philippine stocks remained around 2% higher amid a regional rally.
The disappointing reading comes as the central bank, which last month raised interest rates, has little room to support the economy because of peso weakness and surging consumer prices. Growth and investment have slowed dramatically since Marcos announced a probe into the misuse of flood-control funds last year.
“The lower-than-expected GDP print in the first quarter shows fiscal stimulus is not enough to uplift economic growth, just like during the pandemic,” said Alvin Arogo, head of research and economist at Philippine National Bank. “As such, monetary tightening, which does not address the supply shock, could seriously put at risk the ability of the country’s growth recovery in the coming quarters.”
The data came just two days after Indonesia announced first-quarter growth had accelerated.
“Our growth performance trails Vietnam, Indonesia and China among others in the region,” Mr. Balisacan said at a briefing in Manila. “This outcome reflects the combined impact of significant domestic and global challenges.”
The biggest factor in the slump was the conflict in the Middle East, he said. The US conflict with Iran has spiked oil prices globally, but the Philippines is particularly affected because it imports more than 90% of its oil requirements from the Middle East.
But even before the war erupted, the Philippines had been rocked by revelations that billions of dollars in public funds meant for flood-control projects had been misused. That led 2025 growth to slump to 4.4%, the weakest pace in more than a decade outside the pandemic.
The corruption controversy continued to weigh on consumer, business and investor confidence in the first quarter of 2026, while delays in the passage of the budget slowed the rollout of critical programs, Balisacan said.
The reading “continues to emphasize the double impact of lingering flood control issue and the biggest geopolitical conflict this year,” said Ruben Carlo Asuncion, chief economist at Union Bank of the Philippines. — Bloomberg
