By Justine Irish D. Tabile, Senior Journalist
PHILIPPINE gross domestic GDP is likely to remain below 5-6% of the government growth is expected in the second quarter as higher oil prices and tight financial conditions continue to dampen domestic demand, analysts said.
This is as the Development Budget Coordinating Committee will meet this week to review its macroeconomic outlook following a weaker-than-expected performance in the first quarter.
“We expect second-quarter GDP growth to grow moderately between 3% and 3.2% year-on-year as higher oil prices and tight financial conditions continue to weigh on domestic demand,” Maybank Investment Bank economist Azril Rosli said. BusinessWorld.
Marco Antonio C. Agonia, an economist at the University of Asia and the Pacific (UA&P), said he expects “flat, less than 3% growth in the second quarter as traditional growth drivers remain under siege.”
If possible, the GDP of the second quarter will be slower than the growth of 5.44% during the same period in 2025.
However, it would be faster than GDP growth of 2.8% in the first quarter of 2026, which was the slowest print in five years.
“The amount of money spent on public infrastructure will probably come back in the second half of the year, which is quickly pulling the budget structure,” said Mr. Agony.
Government spending grew 4.8% in the first quarter, much slower than 18.7% last year but faster than the 0.7% increase in the fourth quarter.
Meanwhile, the composition of the total capital – which is part of the economic investment – decreased by 3.3% in the first quarter, a reversal of the growth of 4.5% last year. Still, this was an improvement from the 9.4% decline in the fourth quarter.
“Housing consumption is likely to remain soft as rising costs of transportation, food, and utilities reduce purchasing power, while investment activity remains constrained by high borrowing costs and continued delays in infrastructure implementation,” said Mr. Rosli.
Household final consumption expenditures – a key driver of the economy – grew by 3% in the first quarter, the slowest pace since the 4.8% contraction in the first quarter of 2021.
Without the pandemic, this has been the slowest growth in consumption since 2.6% in the third quarter of 2010.
“Key risks include the continued rise in international tensions, Brent crude prices above $110 per barrel, the broader effects of the second round of inflation, and the possibility of aggressive BSP tightening,” added Mr. Rosli.
Inflation rose to 7.2% in April, beating the Bangko Sentral ng Pilipinas' (BSP) forecast of 5.6%-6.4% for the month.
The BSP has signaled further rate hikes to keep inflation steady after the April print beat expectations. Last month, the central bank introduced the first rate hike of 25 basis points in two and a half years, bringing the policy rate to 4.5%.
“To add to this issue, the effects of the war in the Middle East will be felt hard in the second half, as all the months within it are dealing with the pain of the oil shock and its second round effects,” said Mr Agonia.
“Inflation and disruptions in the supply of basic services will undermine consumer and business confidence, eroding the appetite for spending,” he added.
Following a weak first-quarter GDP performance, BMI's Fitch Solutions unit lowered its 2026 GDP growth forecast to 4.2% from 4.7%, while Capital Economics lowered its forecast to 3% from 3.5%. Pantheon Macroeconomics similarly lowered its estimate to 4% from 4.8%.
SILVER LINING
Finance Secretary Frederick D. Go said last week that the government will improve spending to revive the economy, and reducehe played up the dangers of stagflation.
“The economic team is fully confident that once the war in Iran is over, the growth of our economy will resume its previous path. So, that means we are looking at levels in the middle of 5% as soon as all this uncertainty is over,” Mr. Go told Bloomberg News.
Mr. Go also noted that foreign companies are still interested in establishing operations in the Philippines.
“Investment interest in the Philippines is very high,” he said. “I don't think we're going to have stagflation.”
Mr. Agonia said the use of infrastructure can help drive growth in the following areas.
“The most prominent thing we see will be the resumption of infrastructure spending in the second half of this year,” he said.
Last week, Secretary of the Department of Economy, Planning, and Development Arsenio M. Balisacan said he expects government spending and project implementation to accelerate in the coming months as agencies make their participation plans.
A corruption scandal involving flood control projects has halted government spending and eroded consumer and investor confidence. Mr. Baliscan said the ongoing effects of the scandal continue to be seen in the economic data for the first quarter.
To Mr. Maybank's Rosli, service activity, incoming income, tourism revival, and strong e-commerce will continue to support the economy.
“In particular, the global artificial intelligence (AI)-driven semiconductor upcycle could be a significant driver of Philippine exports as electronic products account for 54% of total exports,” he said.
“Export growth remained strong at 7.8% year-on-year in the first quarter despite weak domestic conditions, partly supported by semiconductor-related demand,” he added.
This growth was driven by a 13.3% increase in goods exports and a 3% increase in services exports.
However, Mr. Agonia said that while exports may provide a small positive tilt, “risks such as operational disruptions and the appearance of soft global demand are increasing.”
“We are aware that the peso-dollar exchange rate volatility shocks the confidence of exporters, suppresses payments and increases the cost of inputs,” he said.
However, Mr. Agonia said AI-related semiconductor demand could be “one of the few green shoots in the Philippines' growth picture, with strong performance despite global headwinds.”
“This may be a good time for the Philippines to move up the electronics value chain and look for sustainable growth drivers,” he added.
