Philippines likely to miss 2025 growth goal

By Aubrey Rose A. Inosante, Reporter

THE PHILIPPINE ECONOMY is unlikely to get the boost it needs in the fourth quarter to reach the low end of its full-year growth target, as public spending and investments are expected to remain subdued amid a widening corruption scandal, analysts said.

Analysts also said it is time for economic managers to revise their 5.5% to 6.5% gross domestic product (GDP) growth goal for 2025.

Jonathan L. Ravelas, a senior adviser at Reyes Tacandong & Co., said Philippine GDP is unlikely to grow by 6.9% in the fourth quarter to register at least 5.5% growth for the full year.

“The government’s economic team flagged slower public spending as a key drag on momentum. In response, I’ve adjusted my GDP targets for 2025 to 5.3% (from 5.7%), and for 2026 to 5.6% (from 5.8%),” he told BusinessWorld in a Viber message over the weekend.

Philippine GDP expanded by 4% in the third quarter, sharply slowing from the 5.5% in the second quarter and 5.2% a year ago, as public construction was hit by a corruption scandal involving infrastructure projects that has dampened consumer and investor sentiment.

This was the slowest pace since the 3.8% contraction at the height of the pandemic in the first quarter of 2021. Excluding the pandemic, this growth was the weakest since the third quarter of 2011.

This brought the nine-month average to 5%, slower than 5.9% in the same period last year.

Reinielle Matt M. Erece of Oikonomia Advisory and Research, Inc. said the economy is not likely to expand by 7% in the fourth quarter.

“We may expect it to grow by at most 5.2% given the momentum of the economy. Persistent pessimism, add to that the disappointing third-quarter GDP growth, would drag investments on a downward trend,” he said in a Viber message over the weekend.

Mr. Erece said that strong corporate earnings won’t be enough to counter the drag from transparency issues and economic disruptions from recent calamities.

Economy Secretary Arsenio M. Balisacan on Friday said hitting even the low end of the government’s 5.5% to 6.5% growth target will be “very challenging,” especially with more storms expected this quarter.

ING Bank Regional Head of Research, Asia Pacific Deepali Bhargava warned that sluggish government spending could become a longer-term drag on the economy, dampening both fiscal outlays, business and private sector sentiment.

Government spending rose by 5.8% in the third quarter, slowing from the 8.7% pace in the previous quarter, but faster than the 5% growth in the same period in 2024.

“While agriculture and private consumption are likely to rebound in the fourth quarter, investment and public spending may remain muted, keeping the overall GDP growth numbers subdued,” Ms. Bhargava said in a report on Nov. 7.

Citing the Business Outlook Survey, Ms. Bhargava noted the 12-month all-industry confidence index fell to its lowest since 2022 in the third quarter, with respondents most pessimistic about construction and real estate.

“Externally, export strength in Q3 provided some support, but this resilience may fade in 2026 as the full impact of higher tariffs takes hold, eroding competitiveness,” she said.

ING now sees 2025 GDP growth at 4.7%, down from its earlier 5.2% forecast.

‘UGLY ALL AROUND’
Pantheon Macroeconomics Chief Emerging Asia Economist Miguel Chanco described the Philippines’ third-quarter GDP print as “ugly all around” and warned that the worst has yet to come.

“Looking ahead, things are likely to get worse before they get any better, as the anti-corruption drive in public infrastructure projects that has stymied activity only really started in the final month of the third quarter,” he said in a report on Nov. 7.

Mr. Chanco flagged deepening cracks in domestic demand, with sales data showing no signs of “light at the end of the tunnel” but more likely than not to bleed into the fourth quarter.

For Mr. Chanco, the only real bright spot was the export of services, which rebounded by 2.4% quarter on quarter.

“We’ve been downbeat on the economy’s growth prospects for some time, but it’s clear today that we’ll still have to downgrade our already soft 5.3% and 5.4% projections for this year and next, respectively,” he said.

Union Bank of the Philippines Chief Economist Ruben Carlo O. Asuncion said in an e-mail that 4% growth in the third quarter reflected impact of tighter financial conditions, slower government spending, and lingering external headwinds.

“While household consumption remained resilient, the drag from weak capital formation and subdued exports underscores the need for stronger public investment execution and targeted support for trade-sensitive sectors,” he said in a Viber message.

In the third quarter, household final consumption expenditure, which accounts for over 70% of the economy, grew by a slower 4.1% from 5.3% in the second quarter and 5.2% a year ago.

Gross capital formation, the investment component of the economy, contracted by 2.8% versus the 12.8% growth a year ago and the 1.2% expansion in the second quarter.

Capital Economics noted that the Philippines’ third-quarter performance contrasted sharply with most of the region — including Taiwan, South Korea, and Vietnam, where growth accelerated during the period.

“Heightened uncertainty and fears of exposure may deter firms from committing to new investment projects, while delays in public procurement will weigh further on demand,” it said, saying that weakness in activity is likely to persist through 2026.

Despite the absence of widespread political unrest, Ms. Bhargava said the expansion of the anti-corruption campaign risks prolonging the economic slowdown.

“It’s sad that neighboring ASEAN (Association of Southeast Asian Nations) countries such as Vietnam are growing at such a robust pace compared to us. We lack competitive industrial policy, inclusive opportunities, and most importantly, good governance,” Mr. Erece said.

Finance Secretary Ralph G. Recto earlier said the economic fallout from the corruption scandal is “temporary,” adding that he projects an economic rebound in 2026.

Mr. Ravelas said that for investments to rebound in the fourth quarter, the government has to “fix the corruption issue and restore public trust.”

“For now, monitor fiscal policy execution closely. If spending remains subdued, private sector resilience and investment will be critical to sustaining growth,” Mr. Ravelas said.

MORE ROOM FOR BSP CUT
Meanwhile, weak economic prospects and the easing inflation outlook would give the Bangko Sentral ng Pilipinas (BSP) ample room to continue its easing cycle, analysts said.

Capital Economics said in a report that the recent GDP result “confirmed” the chances of the BSP cutting rates at its Dec. 11 meeting.

“We continue to expect two more 25-basis-point (bp) rate cuts this cycle (one before yearend and another in early 2026) but the risks are skewed towards more easing than we currently anticipate,” it added.

ING’s Ms. Bhargava said the slower third-quarter print strengthens their call for a 25-bp rate cut in December.

Since it began its easing cycle in August 2024, the Monetary Board has cut its key policy rate by 175 bps to a three-year low of 4.75%.

BSP Governor Eli M. Remolona, Jr. has signaled further easing until next year to help support domestic demand as the corruption mess dampened investor sentiment and economic prospects.

“With inflation easing and the BSP likely to pivot to a more accommodative stance in early 2026, apart from the 25-bp cut in December,” Mr. Asuncion said.

In the 10-month period, inflation averaged 1.7%, matching the BSP full-year forecast and still within its 2-4% target.

“Nevertheless, we expect growth to regain momentum, though risks from global demand and fiscal constraints remain,” Mr. Asuncion said.