By Justine Irish D. Tabile, Senior Reporter
PHILIPPINE gross domestic product (GDP) likely remained below the federal government’s 5-6% growth goal within the second quarter as higher oil prices and tighter financial conditions continued to dampen domestic demand, analysts said.
This because the Development Budget Coordination Committee is about to satisfy this week to review its macroeconomic assumptions following the weaker-than-expected first-quarter performance.
“We expect second-quarter GDP growth to grow moderately between 3% and three.2% yr on yr as higher oil prices and tighter financial conditions proceed to weigh on domestic demand,” Maybank Investment Bank economist Azril Rosli told BusinessWorld.
Marco Antonio C. Agonia, an economist on the University of Asia and the Pacific (UA&P), said that he expects “similar, sub-3% growth within the second quarter with traditional growth drivers still under siege.”
If realized, the second-quarter GDP could be slower than the 5.44% growth in the identical period in 2025.
Nonetheless, it could possibly be barely faster than the two.8% GDP expansion in the primary quarter of 2026, which was the slowest print in five years.
“The majority of public infrastructure spending will likely only return by the second half of the yr, which immediately drags investment formation,” said Mr. Agonia.
Government spending grew by 4.8% in the primary quarter, much slower than 18.7% a yr ago but faster than the 0.7% growth within the fourth quarter.
Meanwhile, gross capital formation — the investment component of the economy — contracted by 3.3% in the primary quarter, a reversal of the 4.5% growth a yr ago. Still, this was an improvement from the 9.4% decline within the fourth quarter.
“Household consumption is more likely to stay soft as rising transport, food, and utility costs erode purchasing power, while investment activity stays constrained by elevated borrowing costs and ongoing infrastructure implementation delays,” said Mr. Rosli.
Household final consumption expenditure — a key driver of the economy — grew by 3% in the primary quarter, the slowest pace for the reason that 4.8% contraction in the primary quarter of 2021.
Excluding the pandemic, this was the slowest growth in consumption since 2.6% within the third quarter of 2010.
“Key downside risks include an extra escalation in geopolitical tensions, sustained Brent crude prices above $110 per barrel, broader second-round inflation effects, and the potential of more aggressive BSP tightening,” Mr. Rosli added.
Inflation accelerated to 7.2% in April, breaching the Bangko Sentral ng Pilipinas’ (BSP) 5.6%-6.4% forecast for the month.
The BSP has signaled more rate hikes to maintain inflation in check after the April print exceeded expectations. Last month, the central bank delivered its first 25-basis-point rate hike in two and a half years, bringing the benchmark policy rate to 4.5%.
“Compounding the problem, the results of the Middle East war shall be felt harder within the second quarter, with all months inside it experiencing the brunt of the oil shock and its second-round effects,” said Mr. Agonia.
“Higher inflation and provide disruptions will weigh on consumer and business confidence, dampening spending appetite,” he added.
Following the sluggish first-quarter GDP performance, Fitch Solutions unit BMI slashed its 2026 Philippine GDP growth forecast to 4.2% from 4.7%, while Capital Economics cut its projection to three% from 3.5%. Pantheon Macroeconomics likewise lowered its estimate to 4% from 4.8%.
SILVER LINING
Finance Secretary Frederick D. Go last week said that the federal government will boost spending to revive the economy, and downplayed stagflation risks.
“The economic team is completely optimistic that after the war in Iran is over, the expansion of our economy will resume its previous path. So, which means we’re the mid 5% levels as soon as all these uncertainties are over,” Mr. Go told Bloomberg News.
Mr. Go also noted that foreign firms are still fascinated about establishing operations within the Philippines.
“The interest to speculate within the Philippines is at an all-time high,” he said. “I don’t think we could have stagflation.”
Mr. Agonia said infrastructure spending could help drive growth within the succeeding quarters.
“The most important vibrant spot we see could be the resurgence of infrastructure spending by the second half of this yr,” he said.
Last week, Department of Economy, Planning, and Development Secretary Arsenio M. Balisacan said that he expects government spending and project implementation to speed up in the approaching months as agencies operationalize their catch-up programs.
A corruption scandal involving flood control projects had stalled government spending, and dampened consumer and investor confidence. Mr. Baliscan had said the lingering effects of the scandal continued to be seen within the first-quarter economic data.
For Maybank’s Mr. Rosli, services activity, remittance inflows, tourism recovery, and resilient electronic exports will proceed to support the economy.
“Particularly, the continued global artificial intelligence (AI)-driven semiconductor upcycle could change into a meaningful upside driver for Philippine exports on condition that electronic products account for 54% of total exports,” he said.
“Export growth remained relatively strong at 7.8% yr on yr in the primary quarter despite weaker domestic conditions, supported partly by semiconductor-related demand,” he added.
This growth was driven by a 13.3% expansion in goods exports and a 3% increase in services exports.
Nonetheless, Mr. Agonia said that although exports could provide a minor favorable tilt, “downside risks in the shape of logistics disruptions and a softer global demand outlook are rising.”
“We note that volatility within the peso-dollar rate is shaking exporters’ confidence, constraining solvency and raising input costs,” he said.
Still, Mr. Agonia said that AI-related semiconductor demand could possibly be “one among the few green shoots within the Philippines’ growth picture, with robust performance despite global headwinds.”
“This will be an opportune time for the Philippines to maneuver up the electronic product value chain and search out more enduring growth drivers,” he added.