The Philippine economy is projected to grow at a slower pace in the second quarter, as persistent inflation dampens household spending and weak business confidence curtails investment, while public infrastructure outlays remain sluggish.
Economists surveyed estimate a median annualized GDP growth of 2.8% for the April‑June period, matching the first‑quarter performance and marking a sharp deceleration from the 5.4% expansion recorded in the same quarter last year.
If realized, the first half of the year would average 2.8% growth, falling short of the government’s 3.5%‑4.5% full‑year target.
The national statistics agency is scheduled to release the official second‑quarter GDP figures on Friday.
Analysts attribute the slowdown to the ripple effects of the Middle East crisis, which pushed inflation to a three‑month average of 6.8%, eroding consumer purchasing power and raising risk premia that discourage investment.
Fuel and food price surges drove the inflation spike, while heightened geopolitical uncertainty further weakened business sentiment and overall economic activity.
As a net importer of crude oil, the country has been under an energy emergency since late March, with the regional conflict threatening fuel supplies and adding pressure to the economy.
Projections indicate that private consumption and investment remain subdued, reflecting caution among firms amid lingering economic uncertainty and a continued lag in public infrastructure spending.
Public construction activity has yet to recover, contracting for a fifth consecutive quarter due to delayed infrastructure disbursements and rising costs of construction materials and logistics.
Infrastructure spending contracted sharply year‑on‑year, while private investment showed signs of softness, evident in weaker building‑permit approvals and a cautious business outlook.
Recent budget data reveal that infrastructure and other capital outlays fell 35.3% year‑on‑year to 80.1 billion pesos in May, with a 42.9% decline over the first five months.
Some forecasts suggest headline GDP could slow to 1.8% in the second quarter, raising the possibility of a revised growth target for the coming year if the trend persists.
Merchandise exports have supported growth, though momentum may be waning due to global trade uncertainty and heightened geopolitical tensions.
Exports of semiconductors and electronic products, which account for a large share of total shipments, continue to provide a boost, yet risks remain from weakening demand for services abroad.
Overall merchandise exports rose 13.1% in the first half of the year, driven by a 20.7% surge in electronic product shipments.
Manufacturing output rebounded with double‑digit growth in April and May, signaling recovery in sectors such as electronics, food processing, and other export‑oriented activities.
Agricultural output showed modest improvement, with increased production of staple crops and higher agricultural exports, though the sector remains vulnerable to weather disruptions, fertilizer and fuel costs, and logistical challenges.
The labor market displayed signs of weakness, as unemployment edged up to 4.7%‑4.8% in recent months, limiting household income growth and curbing consumption‑driven expansion.
Achieving the full‑year growth target will depend on a stronger rebound in the second half of the year, driven by accelerated domestic demand and renewed investment activity.
Continued infrastructure spending, resilient remittance inflows, and a gradual easing of inflation could underpin a firmer recovery, provided energy prices stabilize.
Full‑year growth projections range from 3.5% to 4.2%, with downside risks including persistently high oil prices, supply disruptions linked to regional conflicts, and ongoing investment weakness.
Additional headwinds such as renewed Middle East tensions, minimum‑wage hikes, and the threat of an aggressive El Niño season may further challenge the recovery, while elevated interest rates could dampen medium‑term prospects.
El Niño poses a particular risk to agricultural production and food inflation, and a weaker global economy combined with persistent trade uncertainty could weigh on both exports and private investment.
