The Philippine economy expanded at its weakest annual pace since 2021 during the second quarter, growing just 2.3% due to a slump in construction and softer domestic demand. Economic Planning Secretary Arsenio Balisacan pointed to a prior corruption scandal as a primary drag on public spending and investor sentiment.
The weaker-than-expected figures for the June quarter fell short of the 2.8% median forecast in a Reuters poll and dipped below the previous quarter’s 2.8% expansion, according to the statistics agency. For the first six months of the year, growth stands at 2.6%, well beneath the bottom of the government’s full-year target range of 3.5% to 4.5%.
Construction Slump and Scandal Cast Long Shadow Over Investment
Public and private infrastructure activity bore the brunt of the slowdown. Construction contracted 14.8% in the second quarter from a year earlier, worsening from a 4.3% decline in the first quarter.
That contraction dragged down overall investment, which shrank 9.2% to mark a fourth straight quarter of contraction. Economic Planning Secretary Arsenio Balisacan explicitly blamed the downturn on a corruption scandal involving flood-control projects that broke last year, which curtailed public spending and dented investor sentiment in infrastructure projects.
Household Spending Softens as Inflation Erodes Purchasing Power
Consumers faced mounting pressures as elevated inflation eroded purchasing power. Growth in household spending—which accounts for more than two-thirds of economic activity—softened to 2.8% in the second quarter, from 3.0% in the first quarter.
Inflation averaged 5.0% over the first seven months of 2026, above the government’s target of 3.0%. The central bank has responded to these persistent price pressures by raising its policy rate by 25 basis points at each of its past two reviews.
Cautious Optimism and Upcoming Central Bank Policy Decisions
Despite the headwinds, officials maintain that economic activity may be entering the early stages of recovery. Economic Planning Secretary Arsenio Balisacan addressed the outlook during a media briefing.
The government anticipates that infrastructure spending will pick up in the current quarter as work begins on recently approved projects. Furthermore, surveys point toward improving business confidence and production conditions.
Policy Dilemma Ahead of the August 27 Central Bank Review
The central bank must decide how to balance the need to support the economy against high inflation.
Those competing priorities will take center stage when the central bank’s next policy review convenes on August 27. Having already cut its forecast for growth this year to a 3.5% to 4.5% range in June due to the Middle East crisis and the impact of the corruption scandal, the budget planning committee has set a GDP growth target of 5% to 6% for 2027 to 2030.
