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By Aubrey Rose A. Inosante, Reporter
PHILIPPINE economic advancement decelerated to a more than four-year low of 4% in the third quarter as governmental construction faced backlash from a corruption controversy tied to state infrastructure projects, which has affected consumer and investor confidence.
Gross domestic product (GDP) grew by an annual 4% in the three months ending in September, significantly slowing from the 5.5% expansion in the second quarter and the 5.2% pace in the same quarter in 2024, data from the Philippine Statistics Authority (PSA) revealed on Friday.
This was considerably less than the 5.3% median projection in a BusinessWorld survey of 18 analysts and economists.
On a seasonally adjusted quarterly basis, GDP increased by 0.4%, down from 1.46% a year prior.
“The Philippine economy continues to grow, but the performance in the third quarter highlights the pressing necessity to confront significant challenges and fortify our foundations for rapid, sustainable, and inclusive growth,” Department of Economy, Planning, and Development Secretary Arsenio M. Balisacan noted during a briefing.
The third-quarter growth rate marked the slowest increase recorded since the 3.8% contraction in the first quarter of 2021, a period when the country was still overcoming the effects of the coronavirus pandemic that halted economic activities.
Excluding the pandemic, this was the weakest growth since the 3% increase in the third quarter of 2011.
This reduced the nine-month average to 5%, slower than 5.9% during the same span last year, moving the government’s 5.5%-6.5% full-year GDP growth goal further out of reach.
Mr. Balisacan remarked that achieving even the lower end of the target would be “very challenging,” particularly as more storms are predicted to impact the nation this quarter, but expressed optimism that private expenditure could recover with expectations of heightened consumption and remittances amid the festive season.
“Though we may not fully regain the economic losses within the year, we consider these to be temporary obstacles. With sustained initiatives and enhanced resilience, we anticipate the economy will bounce back in 2026.”
During the third quarter, household final consumption expenditure, which represents over 70% of the economy, increased by a slower 4.1%, down from 5.3% in the previous quarter and 5.2% a year ago.
This represented the slowest rate since the 4.8% contraction in the first quarter of 2021. Excluding the pandemic years, it was the slowest increase in private spending since the 2.6% rise in the third quarter of 2010.
“Widespread cancellations of school, work, and travel activities due to typhoons likely suppressed spending,” Mr. Balisacan stated.
“Furthermore, consumer confidence may have been influenced by the ongoing investigations and discussions regarding government infrastructure spending, leading many households to delay purchases, particularly of durable goods… These patterns both reflect and influence consumer and business expectations and send a clear message for the government to act swiftly and decisively.”
PUBLIC CONSTRUCTION
Meanwhile, government expenditure rose by 5.8% last quarter, a drop from the 8.7% pace in the preceding quarter but quicker than the 5% increase during the same period in 2024.
This occurred as allegations of corruption concerning state flood-control projects highlighted by President Ferdinand R. Marcos, Jr. during his State of the Nation Address in July hindered public construction activities. Investigations into the graft scandal reportedly involving lawmakers, government officials, and private contractors are ongoing.
Gross capital formation, the investment segment of the economy, decreased by 2.8% in the third quarter compared to the 12.8% increase a year prior and the 1.2% growth in the second quarter.
National Statistician Claire Dennis S. Mapa attributed this deceleration to a 26.2% drop in general government construction, worse than the 8.2% decline in the second quarter and the most significant fall since the 28.6% decrease in the third quarter of 2011.
“Following these scandals, we recognize the substantial potential for enhancing the quality of expenditure,” Mr. Balisacan indicated. “In recent years, we’ve aimed for 5% to 6% of GDP for infrastructure expenditures just to catch up with our neighboring countries — and this is crucial for the next decade or so. However, as we’re observing now, the productive capacity we sought to achieve was muted by these corrupt practices.”
“Of course, everyone was aware of the corruption… But it’s truly shocking to realize how extensive it was.”
He emphasized that reinforcing investor and consumer confidence through strengthening institutions and governance is crucial for ensuring the recovery of the economy.
Conversely, private construction “remained commendable” in the third quarter, although investment in durable equipment was muted, Mr. Balisacan noted.
He added that the external sector performed well in the third quarter compared to the net export decrease observed in the previous three-month period, even as the 19% tariff on the Philippines’ exports to the United States became effective.
“Regrettably, the substantial decline in other sectors of the economy overshadowed the favorable effects of the external sector.”
The industrial sector expanded by 0.7% in the third quarter, dramatically slowing from the 5% growth recorded a year ago and 2.1% in the second quarter.
“On the supply side, services and industry exhibited weaker growth, with a significant contraction in public construction due to stricter validation measures for the Department of Public Works and Highways (DPWH) civil works, alongside stringent requirements that delayed billings and disbursements for government initiatives,” Mr. Balisacan stated.
The services sector, which contributed the most among primary industries, grew by 5.5% in the third quarter, slower than 6.3% a year prior.
Meanwhile, agricultural output increased by 2.8% in the third quarter, reversing a 2.7% decline a year earlier but slower than the 7% growth in the second quarter.
The PSA mentioned that among the primary contributors to the third-quarter growth were wholesale and retail trade, repair of motor vehicles and motorcycles (5%), financial and insurance activities (5.5%), and professional and business services (6.2%).
Gross national income experienced an annual growth of 5.6% in the third quarter, slower than the 8% expansion in the preceding quarter and 6.8% a year ago.
Net primary income rose by 16.9% in the third quarter, slower than the 20% in the same period of 2024.
RECOVERY IN DOUBT
Hongkong and Shanghai Banking Corp. economist for ASEAN Aris D. Dacanay stated that the decline in public construction last quarter was anticipated given the corruption investigation.
“Without immediate policy or institutional reform, history has demonstrated that fiscal drag can persist for over a year,” he remarked, adding that a 10% drop in government infrastructure spending risks pulling growth back by 0.4-0.6 percentage points.
ANZ Research economist Arindam Chakraborty and Chief Economist for Southeast Asia and India Sanjay Mathur noted in a report that a near-term recovery is improbable due to the repercussions of the corruption scandal.
“We do not foresee a revival in government spending until governance issues are addressed. Both business and household confidence surveys do not indicate significant improvement in spending. Credit growth has decelerated in the last three months, suggesting that the impact of rate cuts has been limited thus far. Overall, it appears that the official 2025 GDP forecast of 5.5–6.5% will not be realized,” they stated.
They now predict the Philippine economy to grow by 4.9% this year, reduced from 5.4% previously, while they also lowered their 2026 forecast to 5% from 5.2% earlier.
Chinabank Research also mentioned that the public construction aspect “may continue to hinder economic growth, as investigations persist and due to the proposed reallocation of some DPWH funding to other priority areas in next year’s national budget.”
“In the fourth quarter, efforts to catch up on government spending could support growth, though natural disasters present risks to consumption activities,” it noted.
Weak economic forecasts and a manageable inflation outlook would provide the Bangko Sentral ng Pilipinas (BSP) with ample opportunity to continue its easing cycle, the analysts suggested.
The ANZ Research economists anticipate two additional 25-basis-point (bp) cuts from the central bank.
Meanwhile, Mr. Dacanay stated that the base case is for a 25-bp reduction at the Monetary Board’s Dec. 11 meeting, but the deceleration opens the possibility for a more significant cut, depending on the U.S. Federal Reserve’s position.
In October, the BSP lowered benchmark rates by 25 bps for the fourth consecutive meeting, bringing the policy rate down to 4.75%. It has now reduced borrowing costs by a total of 175 bps since the easing cycle commenced in August 2024.
BSP Governor Eli M. Remolona, Jr. has indicated further easing into the next year to support domestic demand as the corruption situation has impacted investor sentiment and economic outlook.
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