By Justine Irish D. Tabile, Senior Reporter
THE PHILIPPINE ECONOMY faces a steep climb to hit the low end of the government’s growth target this year, with economists saying average growth of at least 4.4% in the second half would require a sharp rebound in public spending and a recovery in business and consumer confidence.
“It will require a massive economic rebound and accelerated public spending just to achieve the lower end of the government’s target,” Francisco Cid L. Terosa, an associate professor and former dean of the School of Economics of the University of Asia and the Pacific (UA&P), told BusinessWorld.
“The economy has to grow by 4.5% to 5% to achieve the lower end of the growth target. With geopolitical hurdles and domestic political-economic issues, 4.5% to 5% in the next two quarters would be a steep challenge,” he added.
Gross domestic product (GDP) grew by 2.3% in the second quarter, slower than the 5.4% growth a year ago and the 2.8% expansion in the first quarter.
This was the slowest GDP growth since the 3.8% contraction in the first quarter of 2021 or during the coronavirus pandemic. Excluding the pandemic years, this was the weakest in over 16 years or since the 1.8% expansion in the fourth quarter of 2009.
For the first half, GDP expanded by 2.6%, below the government’s revised 3.5%-4.5% target for 2026.
Department of Economy, Planning, and Development Secretary Arsenio M. Balisacan earlier said the economy would have to expand by an average of at least 4.4% in the second semester to achieve the lower end of the full-year target.
Ateneo Center for Economic Research and Development Senior Research Fellow Ser Percival K. Peña-Reyes said a 4.4% second-half expansion remained achievable, but only under an optimistic scenario.
“To reach that pace, the economy would likely need a meaningful rebound in public infrastructure spending, no further major oil price shock, inflation that at least stabilizes rather than accelerates, continued resilience in household consumption and a modest recovery in private investment,” he told BusinessWorld via Facebook Messenger.
“If infrastructure disbursements accelerate as planned and external conditions do not deteriorate further, growth could approach the required pace,” he added.
Mr. Peña-Reyes said the biggest potential catalyst would be the government’s catch-up spending program.
“If agencies can resume implementation of legitimate projects more quickly, public investment could again become a major growth driver,” he said.
Favorable base effects could also lift year-on-year growth because economic activity had already begun slowing in the second half of 2025.
“Even moderate improvements in output could therefore translate into noticeably higher year-on-year growth rates,” Mr. Peña-Reyes said.
Easing uncertainty surrounding public procurement and government spending could also improve business confidence and encourage companies to resume delayed investment projects, he added.
Mr. Peña-Reyes said resilient services such as wholesale and retail trade, financial services, education and tourism-related activities could provide a floor under economic growth.
“Household consumption, while weaker, is still expanding rather than contracting. These sectors can provide a floor under overall GDP,” he said.
UA&P Economist Marco Antonio C. Agonia also said the required pace could be achieved if government spending and economic confidence recovered quickly.
“Arithmetically, slower growth in the latter half of 2025 may make roughly 4% growth achievable in the second half of this year,” he said in an e-mailed response to BusinessWorld’s inquiry.
“Beyond mechanical adjustments, however, the economy needs to see some stimulus to enliven business confidence,” he added.
Mr. Terosa said stronger consumption during the “ber” months, substantial infrastructure spending, faster budget deployment and sustained growth in relatively “shockproof” sectors such as tourism and services could support the economy.
Stronger semiconductor and electronics exports could also provide a boost, he added.
However, Pantheon Macroeconomics Chief Emerging Asia Economist Miguel Chanco said meeting the target had become “very difficult” following the further slowdown in the second quarter.
“We’ve cut our 2026 GDP growth forecast to just 2.8%, implying average growth of just over 3% in the second half, which I think is already asking a lot from the economy’s main components — consumption and investment,” he said.
If realized, this would mark the economy’s worst performance since it contracted by 9.5% in 2020. Excluding the pandemic, this would be its slowest expansion in 17 years or when it grew by 1.4% in 2009.
Pantheon also cut its Philippine growth outlook for 2027 to 4% from 5%.
DOWNSIDE RISKS
Mr. Chanco said he does not expect a significant comeback in public infrastructure projects in the second half, noting that the budget deficit remains wide relative to the government’s 2026 target.
“I still see no big comeback in public infrastructure projects in the second half of this year,” he said.
Private investment is also likely to remain below par as capacity utilization continues to hover below its historical average, he added.
Mr. Chanco said consumer confidence had taken a significant hit after the Middle East conflict triggered an inflation spike.
“While inflation has peaked in our view and will continue to slow, it will take some time before it normalizes along with confidence; we’re looking at early-2027 at the earliest for this to transpire,” he added.
UA&P’s Mr. Agonia warned that consumer spending could remain weak due to the lack of multiplier effects from government expenditures and a persistent inflation.
Household final consumption expenditure — a key driver of the economy — grew by a new post-pandemic low of 2.8% in the second quarter, further slowing from the 5.2% print in the same quarter last year and 3% in the previous quarter.
Inflation eased to 6.2% in July from 6.4% in June, still above the Bangko Sentral ng Pilipinas’ 2%-4% tolerance band. The July print brought the average to 5% in the first seven months, below the central bank’s 6.4% full-year forecast.
Mr. Terosa said persistent global oil shocks, the continuing Middle East conflict, and unpredictable natural disasters also remained key risks to the outlook.
Elevated borrowing costs could also discourage business investment and household purchases of homes, vehicles and other durable goods, said Mr. Peña-Reyes.
“Investment has now contracted for several consecutive quarters. Businesses may remain cautious until they see stronger demand, clearer policy direction, and faster execution of public infrastructure projects,” he said.
He also cited the lingering impact of the Middle East conflict on oil prices, weaker growth among major trading partners, uncertain global trade conditions and volatile financial markets as key external risks.
“These factors could dampen exports, remittances, investment inflows and business confidence,” he said.
Mr. Peña-Reyes said second-half growth would likely fall short if inflation remained elevated or government spending continued to lag because of implementation bottlenecks.
“The required 4.4% growth rate is within reach, but the margin for policy missteps or external shocks has become very narrow after the unexpectedly weak first half,” he added.
