Philippines risks prolonged below-target growth without deeper reforms

PHILIPPINES, 13 AUGUST 2026 —

The Philippines risks settling into a prolonged period of below-target growth unless it addresses structural weaknesses eroding the foundations of its economy, GlobalSource Partners said.

In a Tuesday commentary, GlobalSource country analysts Diwa C. Guinigundo and Wilhelmina C. Mañalac said the government should rebuild conditions for sustained, investment-led growth rather than focus on short-term targets.

“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 follows the economy’s weakest performance since the pandemic, with gross domestic product expanding just 2.3% in the second quarter. That was down from 2.8% in the first quarter and 5.4% a year earlier.

Public construction contracted as the fallout from the flood control graft scandal deepened. Household spending remained subdued amid elevated inflation, and investment declined. For the first half, GDP grew 2.6%, below the government’s full-year target of 3.5% to 4.5%.

Department of Economy, Planning, and Development Secretary Arsenio M. Baliscan has said the economy must expand at least 4.4% in the second half to reach the lower end of this year’s goal. GlobalSource analysts described even that threshold as difficult, citing governance challenges and global energy shocks.

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

The National Government has pledged to accelerate spending and project implementation, particularly on infrastructure, to offset the slowdown caused by last year’s flood control corruption scandal. Infrastructure outlays fell 42.9% year on year to P269.4 billion in the first five months from P471.5 billion a year ago, marking 11 straight months of annual declines.

The government now projects infrastructure and capital spending will drop 15.1% this year to P931.54 billion from P1.1 trillion in 2025. Spending is expected to edge up in 2027 but remain below a trillion ringgit.

GlobalSource argues these catch-up measures fall short of fixing deeper structural issues such as policy uncertainty, education gaps, food and energy insecurity, and inconsistent governance.

“The Philippine economy does not merely need more spending in the second half of the year,” the analysts said. “It needs a stronger foundation for private investment and productivity.”

They flagged risks from declining gross capital formation, which contracted 9.2% in the second quarter. That was 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 wrote. “When investment contracts sharply, the consequences extend well beyond the quarter in which the decline is recorded.”

They called for rebuilding investor confidence, accelerating legitimate public investment without compromising anti-corruption efforts, improving the regulatory environment, strengthening education and human capital, addressing food and energy vulnerabilities, and pursuing a clearer industrial policy focused on productivity and higher-value investment.

Nomura Global Markets Research kept its headline inflation forecast for 2026 at 5.1% and warned of potential further policy rate hikes as energy price spillovers persist.

Nomura analysts Euben Paracuelles and Nabila Amani said headline inflation has likely peaked but core inflation has not, with second-round effects from high energy prices still feeding into other commodities. Headline inflation eased to 6.2% in July, its third straight monthly decline, while core inflation cooled for the first time in eight months to 4.2%. Both remain well above the central bank’s 3% target.

The Monetary Board may still raise its benchmark rate by 25 basis points at its Aug. 27 and Oct. 22 meetings, they said.

For Malaysian businesses with Philippine operations or supply-chain links, the risk of prolonged below-target growth increases costs and reduces demand, directly affecting revenue and investment plans.

Related: GlobalSource Partners · Philippines