Photo by Miguel de Guzman, The Philippine Star
By Justine Irish D. Tabile, Senior Reporter
PHILIPPINE economic growth slowed to a post-pandemic low of 2.3% in the second quarter, as oil shock stoked inflation and dampened household consumption while a steep decline in public construction dragged investment.
Despite the weaker-than-expected growth, Department of Economy, Planning, and Development Secretary Arsenio M. Balisacan ruled out the risk of stagflation, noting that a recovery could begin in the second half as infrastructure spending picks up.
Data from the Philippine Statistics Authority (PSA) showed that gross domestic product (GDP) expanded by 2.3% in the April-to-June period, significantly slower than the 5.4% expansion in the same quarter last year and the 2.8% growth in the first quarter.
The second-quarter print was below the median GDP growth estimate of 2.8% in a BusinessWorld poll of 21 economists and analysts conducted last week.
This was the slowest GDP growth since the 3.8% contraction in the first quarter of 2021 or during the coronavirus pandemic. Excluding the pandemic years, this was the weakest in over 16 years or since the 1.8% expansion in the fourth quarter of 2009.
On a seasonally adjusted quarter-on-quarter basis, GDP grew by 0.6%, further easing from the 0.9% expansion in the previous quarter.
The second-quarter performance brought first-half GDP growth to 2.6%, well below the government’s 3.5%-4.5% full-year target.
The Philippines also lagged other major Southeast Asian economies that have reported second-quarter data, including Vietnam, which grew by 8.4%; Malaysia, 5.8%; and Indonesia, 5.3%.
“What we are experiencing right now is, I believe, transitory, temporary. We are making efforts to get back to the high growth trajectory. The situation we are in brings us lessons, particularly in the management of our energy sector,” said Mr. Balisacan during a briefing on Friday.
“The pass-through effects of the high oil prices to the local economy was quite quick,” he added.
The Philippines is among the economies hardest hit by the Middle East conflict due to heavy reliance on imported oil. Disruptions in global oil supply have pushed inflation higher, averaging 4.8% in the first six months.
On the demand side, household final consumption expenditure — a key driver of the economy — grew by 2.8% in the second quarter, further slowing from the 5.2% print in the same quarter last year and 3% in the previous quarter.
This was the weakest pace since the 4.8% contraction in the first quarter of 2021. Excluding the pandemic, this was the slowest growth in consumption since the 2.6% in the third quarter of 2010.
“Household consumption growth also moderated amid higher inflation, job losses, and lower remittance receipts arising from the Middle East conflict,” Mr. Balisacan said.
Gross capital formation contracted by 9.2%, worsening from the 3.1% decline in the first quarter, but a reversal of 0.91% expansion in the same quarter a year ago.
Gross fixed capital formation declined by 13.7%, a reversal of the 3.1% growth last year and worsening from the 2.5% contraction in the first quarter. This was the steepest contraction since the first quarter of 2021, when it fell by 18.2%. Excluding the pandemic period, this was the worst performance since the 16.2% drop in the second quarter of 2011.
On the other hand, government final consumption expenditure grew by 8.3% in the April-to-June period, slower than the 8.7% expansion last year but much faster than the 4.8% growth in the first quarter.
“However, government final consumption spending accelerated as social assistance was expanded to cushion vulnerable households and sectors,” Mr. Balisacan said.
Exports of goods and services rose by 12.2%, outpacing the 5.5% growth in imports, amid stronger demand for Philippine semiconductor and electronics products used in artificial intelligence-related technologies.
WEAK INDUSTRY
On the production side, industry contracted by 2.4%, as the decline in construction offset stronger manufacturing output. This was a reversal of the 2.1% growth last year and a deeper contraction than the 0.1% decline in the first quarter.
“One component of the industry is construction, public construction and private construction. Public construction contracted by 32% that’s quite a lot, whereas private construction still managed to grow a bit, by 2.5%, so that accounted for the decrease,” said Mr. Balisacan.
“Manufacturing, fortunately, grew, but it’s not enough to offset the sharp reduction in the growth of construction,” he added.
Public construction plunged by 32.4% as infrastructure agencies remained cautious following the flood-control corruption scandal last year.
Mr. Balisacan said the caution stemmed partly from measures being implemented to prevent similar irregularities and the filing of cases against those allegedly involved in anomalous projects.
He noted GDP growth could have been at least one percentage point higher in the second quarter if public construction had merely recorded zero growth instead of contracting sharply.
“Although public construction is a small part of the economy, the amount of that contraction, which is 32%, brought a significant impact on the economy,” he said.
Services, which accounted for 64.6% of total GDP, grew by 4.5% in the second quarter. This was slower than 6.9% a year ago and 4.6% in the first quarter.
Agriculture, forestry and fishing, which contributed 7.5% to GDP, grew by 2.7% in the second quarter. This was slower than the 7% growth a year ago but a reversal of the 0.3% contraction in the first quarter.
The main contributors to GDP growth were wholesale and retail trade; repair of motor vehicles and motorcycles, which expanded by 4.6%; education, 12.7%; and manufacturing, 2.6%.
Gross national income posted an annual 2.2% growth in the second quarter, decelerating from 8.1% a year ago and 2.9% in the first quarter.
At the same time, net primary income from the rest of the world grew by 1% in the second quarter, much slower than 31.7% in the same quarter in 2025 and 3.5% in the previous quarter.
‘NO STAGFLATION’
Despite the combination of sluggish economic growth and elevated inflation, Mr. Balisacan ruled out the risk that the economy was entering a period of stagflation.
“I don’t think so,” he said when asked about the risk of stagflation.
“We are seeing now some positive developments moving us out of the situation of growth.”
“I think the key factor here is our ability to move public investments because we see and we notice that private investment is also very sensitive to public investments,” he added.
Mr. Balisacan said accelerating public investment could encourage the private sector to increase spending and help rebuild business confidence.
The government expects inflation to continue easing after accelerating to a multi-year high earlier this year, which could gradually restore household purchasing power and consumer confidence.
“And as we deploy our domestic responses, particularly protecting the purchasing power of our population, we hope that we are able to sustain the momentum in the positive sentiments that we are developing in June and after,” Mr. Balisacan said.
Inflation has been easing since May, from a peak of 7.2% in April to 6.8% in May, 6.4% in June, and 6.2% in July.
Mr. Balisacan said slower inflation would also provide a more favorable environment for the Bangko Sentral ng Pilipinas (BSP) to hold off rate hikes, although monetary policy decisions would depend on domestic and global price and interest-rate conditions.
“Now that we are seeing a gradual slowdown of price increases, that should be a positive thing for the BSP,” he said.
“If they also see that inflation is not deanchored from the target, [they] should have no reason to tighten further,” he added.
At its June meeting, the BSP tightened for a second straight meeting, raising the key policy rate by 25 basis points (bps) to 4.75%. The Monetary Board will hold three more policy reviews this year on Aug. 27, Oct. 22, and Dec. 17.
TARGET ‘WITHIN REACH’
The economy must grow by at least 4.4% in the second half to reach the lower end of the government’s 3.5%-4.5% full-year target, Mr. Balisacan said.
“This will be demanding, but the target remains within reach if we act with urgency, discipline, and close coordination across government,” he said.
The government will require implementing agencies to carry out catch-up plans with specific milestones and accountability measures to prevent further delays and underutilization of funds.
“What was not spent in the previous quarters is still going to be spent,” Mr. Balisacan said, noting that these funds would be deployed alongside the programmed budget for the second half.
“Implementing agencies will carry out catch-up plans with clear milestones and accountability measures, including seeking the necessary exemptions for projects covered by restrictions related to the Bangsamoro parliamentary election, to prevent delays and the underutilization of funds,” he added.
Aside from infrastructure spending, Mr. Balisacan said growth would be supported by easing inflation, improving business confidence and stronger exports.
He noted that exports had outperformed imports in the past two quarters, improving the country’s trade balance and providing another source of growth outside household consumption.
The government plans to build on demand for AI-related products by supporting higher-value manufacturing and services and expanding the Philippines’ participation in global technology supply chains.
However, uncertainty surrounding the Middle East conflict, elevated oil prices, tight financial conditions, El Niño and further typhoons could weigh on the recovery, Mr. Balisacan said.
