By Justine Irish D. Tabile, Senior Reporter
THE Philippine economy grew by a weaker-than-expected 2.8% within the first quarter, the slowest pace because the pandemic, because the fallout from a corruption scandal and soaring oil prices triggered by the Middle East conflict dampened economic activity.
Data from the Philippine Statistics Authority showed that gross domestic product (GDP) expanded by 2.8% within the January-to-March period, significantly slower than the 5.4% expansion in the identical quarter last yr.
This was also well-below the three.4% median forecast of 21 economists in a BusinessWorld poll last week, and slower than the revised 3% GDP growth within the fourth quarter of 2025.
On a seasonally adjusted quarterly basis, GDP expanded by 0.93%, from 0.6% within the previous quarter.
The Department of Economy, Planning, and Development (DEPDev) said the impact of the Middle East war, compounded by lingering effects of last yr’s corruption scandal and delays in the discharge of the 2026 national budget, weighed on economic growth within the first three months.
“We recognize that this end result reflects the combined impact of significant domestic and global challenges,” said DEPDev Secretary Arsenio M. Balisacan.
“The conflict within the Middle East, which escalated toward the top of February, triggered higher global oil prices and renewed supply chain pressures, creating additional risks for oil-importing economies corresponding to the Philippines,” he added.
The first-quarter print was the weakest because the 3.8% contraction within the first quarter in 2021. Excluding the pandemic, it was the slowest pace because the 1.8% growth seen within the fourth quarter of 2009.
“Amongst our neighboring economies in Asia which have released their first-quarter GDP figures, our growth performance trails Vietnam, Indonesia, and China, amongst others within the region,” Mr. Balisacan said.
The Development Budget Coordination Committee would meet by Monday next week to review its macroeconomic assumptions, he said.
“We don’t expect to attain the type of growth that we expected to occur a yr ago, given recent developments, and we are going to adjust accordingly,” he said. “(W)e definitely will move our growth targets lower.”
The first-quarter GDP was well below the federal government’s goal range of 5-6% for the yr.
Mr. Balisacan said the expansion outlook would largely depend upon developments within the Middle East conflict, expressing hope that oil prices would proceed to ease.
“But we do know already that at the same time as the Middle East conflict ends today, the lingering effects of the oil prices and the availability chain disruptions will persist in the approaching months.”
SLUGGISH CONSUMPTION
The downtrend in household spending continued within the first quarter.
Household final consumption expenditure — a key driver of the economy — grew by 3% annually, slowing from the 5.28% print in the identical quarter last yr and three.8% within the previous quarter.
This was the weakest pace because the 4.8% contraction in the primary quarter of 2021. Excluding the pandemic, this was the slowest growth in consumption because the 2.6% within the third quarter of 2010.
Mr. Balisacan said the lingering effects of the corruption scandal continued to weigh on consumer and business sentiment.
“But I feel that we’re regularly moving out of that situation. The administration has initiated many reforms toward establishing accountability and transparency in government programs,” he said.
National Statistician Claire Dennis S. Mapa said inflation has historically been a significant component behind slower household consumption.
Inflation averaged 2.8% in the primary three months of the yr, amid faster price increases in fuel, electricity, and food.
Government spending grew by 4.8% in the primary quarter, much slower than the 18.7% a yr ago but faster than 0.7% within the fourth quarter.
Jun Hao Ng, assistant economist at Oxford Economics, said the rise in government spending points to a recovery after the corruption scandal.
“We expect government spending and project implementation to speed up in the approaching months as agencies operationalize their catch-up programs,” Mr. Balisacan said.
Gross capital formation, the investment component of the economy, contracted by 3.3% within the first quarter, from 4.5% a yr ago. Nonetheless, it was an improvement from the 9.4% decline within the fourth quarter.
The PSA said this was mainly as a consequence of the two.8% decline in construction, which in turn was driven by the 31.5% drop in government construction.
“A breakdown of the info shows the major explanation for the weakness was, once more, the flood control corruption scandal,” Gareth Leather, senior Asia economist at Capital Economics, said in a commentary.
He noted construction has dropped for a 3rd consecutive quarter or since President Ferdinand R. Marcos, Jr. announced a crackdown on anomalous flood control projects in his State of the Nation Address last July.
Mr. Ng said that the contraction in investment “suggests the recovery was slow even prior to the war, which might have hit sentiment further.”
Mr. Balisacan said the federal government’s policy thrust at once is to regain the arrogance of consumers and the business sector.
Exports of products and services rose by 7.8% within the period ending March from 7.1% a yr ago, while imports of products and services grew by 6.1%, slowing from the ten.3% growth a yr ago.
WEAK SERVICES
By major economic sector, services, which accounted for 63.2% of total GDP, grew by 4.5% in the primary quarter. Nonetheless, this was slower than 6.2% a yr ago.
Chinabank Research said services posted its weakest performance because the pandemic, although the very best growth got here from public administration, education, and health. “Reduced discretionary spending will likely proceed to weigh on services activity, particularly in retail trade, transportation, accommodation, food services, and recreation,” it said.
Agriculture, forestry and fishing, which contributed 8.1% to GDP, shrank by 0.2% in the primary quarter. This was a reversal of two.2% growth a yr ago.
Industry, which accounted for 28.7% of GDP, contracted by 0.1% within the January to March period. This was a reversal of last yr’s 4.6% growth.
Gross national income posted an annual 3% growth in the primary quarter, decelerating from 7.2% a yr ago and 4% within the fourth quarter.
At the identical time net primary income grew by 4.5% within the first quarter, slower than 22.2% in the identical quarter in 2025 and 11.9% within the previous quarter
STAGFLATION
Meanwhile, Mr. Balisacan said that the country remains to be not experiencing stagflation despite slowing GDP growth, 7.2% inflation in April and 5% jobless rate in March.
“I don’t see it that way. Stagflation, in your standard textbooks, ought to be considered the presence of three things concurrently. One is high inflation, where the costs keep rising. The opposite one is slow or stagnant economic growth, and the third is high unemployment,” he said.
“I feel before the onset of the crisis, we’re seeing improvements within the economy,” he added.
Nonetheless, some analysts said that the country is already facing stagflation which is more likely to persist all year long.
“The Philippines goes through a period of stagflation, with a mixture of slowing (and really weak) GDP growth and rising inflation placing the central bank in an unenviable position,” Mr. Leather said.
“The Philippines is facing a twin-crisis squeeze, with economic growth already weakened by the flood control controversy and now further strained by surging oil and food prices, as we face a stagflation scenario — high inflation alongside weak growth,” Chinabank said.
Nicholas Antonio T. Mapa, chief economist, Metropolitan Bank & Trust Co. said that the economy had been losing momentum even before the corruption probe and the Middle East conflict on “private underinvestment and a buildup in household debt.”
“Growth in the approaching quarters can be challenged even further as inflation surges and Bangko Sentral ng Pilipinas (BSP) can be hard pressed to hike rates,” he said.
“How much policy tightening can do to ease global oil prices remains to be in query, but what is obvious is that the economy can be facing an uphill battle even when National Government can still improve within the second half,” he added.
Deepali Bhargava, regional head of research for Asia-Pacific at ING, said that the primary quarter print “points to a much weaker-than-expected growth trajectory for 2026.”
“We don’t consider this weak GDP print will deter the BSP from proceeding with a rate hike in June,” she said via e-mail.
The BSP signaled more rate hikes to maintain inflation in check amid rising price pressures after the April print exceeded its estimate. Last month, the BSP delivered its first 25-basis-point rate hike in two and a half years to bring the benchmark policy rate to 4.5%.
ANZ Research Chief Economist Sanjay Mathur and Foreign Exchange Analyst Kausani Basak said that the Philippine economy stays in a difficult position amid elevated inflation, weak growth and protracted external headwinds.
“Overall, risks to near-term growth remain skewed to the downside, particularly if inflation stays elevated or global geopolitical conditions deteriorate,” they said in a report.