Philippines may face below-target growth for longer without reforms

PHILIPPINES, 13 AUGUST 2026 —

**Philippines risks prolonged subpar growth without deeper reforms, analysts warn**

**MANILA** — The Philippines may struggle to sustain even modest economic growth unless it addresses long-standing structural weaknesses, despite government efforts to accelerate spending and infrastructure projects, according to a new analysis by GlobalSource Partners.

In a commentary released on Tuesday, GlobalSource country analysts Diwa C. Guinigundo and Wilhelmina C. Mañalac warned that while a stronger second-half rebound could temporarily lift gross domestic product (GDP) growth, the economy’s deeper vulnerabilities—including policy uncertainty, education gaps, food and energy insecurity, and governance issues—will continue to drag on long-term performance.

“A stronger second half would certainly be welcome,” they wrote. “But the real test of economic management is not whether GDP can be pushed back toward 4% for a few quarters. It is whether the government can restore the conditions for sustained, investment-led, and productivity-driven growth.”

The warning comes as the Philippine economy posted its weakest expansion since the pandemic, growing just 2.3% in the second quarter, down from 2.8% in the first quarter and 5.4% a year earlier. Public construction, a key driver of infrastructure development, contracted amid the ongoing fallout from a flood control graft scandal, further dampening investment. Elevated inflation also weighed on household spending, weakening overall economic activity.

For the first half of 2024, GDP expanded by 2.6%, falling short of the government’s full-year target of 3.5% to 4.5%. Department of Economic Planning Secretary Arsenio M. Balisacan has acknowledged that achieving even the lower end of this range will require the economy to grow by at least 4.4% in the second half—a target the GlobalSource analysts described as “tough” given persistent governance challenges and global energy shocks.

While conceding that 4.4% growth in the second half may be “achievable in numbers,” Guinigundo and Mañalac stressed that such a rebound would depend on a broad-based recovery across investment, household demand, business confidence, exports, and government program execution.

“That is possible in numbers,” they wrote. “But economics is not merely arithmetic. It would require a substantial turnaround in investment, stronger household demand, a revival of business confidence, continued export growth and much faster execution of government programs.”

The government has pledged to accelerate spending and project implementation, particularly in infrastructure, to offset the slowdown caused by last year’s corruption scandal in flood control projects. However, infrastructure spending has continued to decline, falling 42.9% year-on-year to P269.4 billion as of May, marking an 11th consecutive month of annual contraction.

The Department of Budget and Management has projected that infrastructure and capital outlays could drop by 15.1% this year to P931.54 billion from P1.1 trillion in 2025, with only a slight increase expected in 2027—remaining below the trillion-peso mark.

The GlobalSource analysts cautioned that these short-term measures are insufficient to address deeper structural issues, including declining gross capital formation, which contracted by 9.2% in the second quarter—a sharper decline than the 3.1% drop in the previous quarter and a reversal from 0.91% growth a year ago.

“Investment is what expands productive capacity,” they noted. “It creates jobs, improves productivity, introduces new technology and raises future potential output. When investment contracts sharply, the consequences extend well beyond the quarter in which the decline is recorded.”

To restore sustainable growth, the analysts urged the government to rebuild investor confidence, accelerate legitimate public investment without compromising anti-corruption efforts, improve regulatory and permitting processes, strengthen education and human capital, address food and energy vulnerabilities, and pursue a clearer industrial policy focused on higher-value investment.

**Inflation pressures persist amid policy dilemma**

Separately, Nomura Global Markets Research maintained its headline inflation forecast for 2026 at 5.1%, citing lingering spillovers from high energy prices. In an Aug. 11 report, analysts Euben Paracuelles and Nabila Amani noted that while headline inflation has likely peaked, core inflation—which excludes volatile food and energy prices—remains elevated due to second-round effects from energy costs.

Headline inflation eased for a third consecutive month to 6.2% in July, while core inflation cooled for the first time in eight months to 4.2%, though both remain well above the Bangko Sentral ng Pilipinas’ (BSP) 3% target.

Nomura expects the BSP to raise its benchmark interest rate by 25 basis points each at its Aug. 27 and Oct. 22 meetings, bringing the key policy rate to 5.25%. The analysts acknowledged that the latest inflation reading may not fully alleviate the BSP’s concerns but supports its preference for a gradual tightening cycle.

This outlook comes even after Nomura revised down its 2024 GDP growth forecast for the Philippines to 3.8% from 4.6%, following weaker-than-expected second-quarter data. The bank anticipates a second-half recovery driven by base effects and potential increases in government spending but warned of risks from political uncertainty and the anticipated “Super El Niño” weather phenomenon.

BSP Governor Eli M. Remolona Jr. has indicated that inflation remains the central bank’s top priority, though he acknowledged that tepid second-quarter growth has eased some pressure on monetary tightening. The BSP has raised rates twice by 25 basis points each since April, bringing the benchmark rate to 4.75%.

**Regional implications and Malaysia’s outlook**

The Philippines’ growth challenges come at a time of broader economic uncertainty in Southeast Asia, where many countries are grappling with inflation, fiscal constraints, and external headwinds. While Malaysia’s economy has shown resilience—growing 5.8% in the first half of 2024—analysts have flagged risks from global trade slowdowns and domestic structural issues, including labor market rigidities and reliance on commodity exports.

For Malaysia, the Philippines’ struggles underscore the importance of maintaining policy credibility and avoiding governance pitfalls that could deter investment. Both countries are part of the ASEAN economic bloc, where trade and supply chain integration remain critical for post-pandemic recovery.

However, Malaysia’s stronger fiscal position and more diversified economy may provide a buffer against the kind of structural weaknesses highlighted in the Philippines. Still, the region’s interconnectedness means that prolonged weakness in one major economy could have spillover effects on trade and investment flows.

**Stakeholder responses and forward outlook**

Government officials have acknowledged the challenges but remain optimistic about the second half. Balisacan has emphasized the need for accelerated project implementation and private sector participation to meet growth targets. Meanwhile, the BSP’s Remolona has reiterated the central bank’s commitment to price stability while balancing growth concerns.

Private sector stakeholders, including business groups and industry associations, have called for clearer policy signals to restore confidence. The Philippine Chamber of Commerce and Industry has urged the government to address regulatory bottlenecks and improve the ease of doing business to attract investment.

Looking ahead, the Philippines faces a critical window to implement reforms that could either reinforce short-term stimulus efforts or leave the economy trapped in a cycle of weak growth. Without addressing structural issues, analysts warn, the country risks prolonged underperformance, with consequences for employment, poverty reduction, and long-term economic resilience.

“Restoring sustained growth requires more than catch-up measures,” Guinigundo and Mañalac concluded. “It demands a fundamental shift toward building a stronger, more productive, and inclusive economy.”

Related: GlobalSource Partners · Philippines