By Justine Irish D. Tabile, Senior Reporter
The Philippine economy grew by 2.8%, which was weaker than expected fiThe first quarter, which is a slow pace since the pandemic, as the emergence of the corruption scandal and the rise in oil prices caused by the Middle East.flIC reduced economic activity.
Data from the Philippine Statistics Authority showed that the gross domestic product (GDP) grew by 2.8% in the January to March period, much slower than the 5.4% expansion in the same quarter last year.
This was also well below the 3.4% median forecast of 21 economists BusinessWorld poll last week, and is slower than the revised 3% GDP growth in the fourth quarter of 2025.
Seasonally adjusted for the quarter, GDP grew by 0.93%, up from 0.6% in the previous quarter.
The Department of Economy, Planning, and Development (DEPDev) said the impact of the war in the Middle East, combined with the ongoing effects of last year’s corruption and the delay in the release of the 2026 national budget, limited economic growth in the country. fithe first three months.
“We note that this result shows the combined effect of the signalfithere will be no domestic and global challenges,” said DEPDev Secretary Arsenio M. Balisacan.
“The conflict in the Middle East, which escalated in late February, has resulted in higher global oil prices and renewed supply pressures, creating additional risks for oil-importing economies such as the Philippines,” he added.
I fiThe first quarter print was very weak from a 3.8% contraction in fiFirst quarter in 2021. Without the pandemic, it was the slowest pace since the 1.8% growth seen in the fourth quarter of 2009.
“Among the economies of our neighbors in Asia that have already released fiFirst quarter GDP figures, our growth follows Vietnam, Indonesia, and China, among others in the region,” said Mr. Balisacan.
The Development Budget Coordination Committee will meet on Monday next week to review its macroeconomic outlook, he said.
“We don’t expect to reach the kind of growth we expected last year, given recent developments, and we will adjust accordingly,” he said. “(W)e untilfiit will slow down our growth targets.”
I fiFirst quarter GDP was well below the government’s target of 5-6% per year.
Mr. Balisacan said the outlook for growth will depend heavily on the development of the Middle East conflict, expressing hope that oil prices will continue to fall.
“But we already know that as the conflict in the Middle East ends today, the ongoing effects of oil prices and supply disruptions will continue in the coming months.”
DOUBLE MEAL
The decline in household spending continued to fithe first quarter.
The family ficonsumption expenditure – which is the main driver of the economy – grew by 3% annually, down from 5.28% printed in the same quarter last year and 3.8% in the previous quarter.
This was the weakest pace since the 4.8% contraction in the first quarter of 2021. Despite the pandemic, this has been the slowest growth in consumption since 2.6% in the third quarter of 2010.
Mr. Balisacan said the ongoing effects of the corruption scandal continue to worry consumers and businesses.
“But I think we are gradually getting out of that situation. The administration has started many changes in establishing accountability and transparency in government programs,” he said.
National Statistician Claire Dennis S. Mapa said that inflation has historically been a major cause of housing consumption declines.
Inflation reached 2.8% in the first three months of the year, amid rapidly rising fuel, electricity and food prices.
Government spending grew by 4.8% in the first quarter, much slower than 18.7% last year but faster than the 0.7% in the fourth quarter.
Jun Hao Ng, an assistant economist at Oxford Economics, said the increase in government spending indicates that it will stabilize after the corruption scandal.
“We expect that government spending and project implementation will accelerate in the coming months as agencies make their catch-up plans,” said Mr. Balisacan.
Gross capital formation, the share of investment in the economy, fell by 3.3% in fifirst quarter, up from 4.5% last year. However, it was an improvement from a 9.4% decline in the fourth quarter.
PSA said this was mainly due to a 2.8% decline in construction, which was caused by a 31.5% decline in government construction.
“The breakdown of the data shows that the biggest cause of weakness was, again, the flood management corruption scandal,” Gareth Leather, senior Asia economist at Capital Economics, said in a statement.
He noted that construction has declined for the third quarter in a row since President Ferdinand R. Marcos, Jr. announced a dramatic flood control campaign in his State of the Nation address last July.
Mr. Ng said the reduction in investment “suggests that the recovery was slow before the war, which would have had a significant impact on sentiment.”
Mr. Balisacan said the government’s current policy focus is to restore confidence to consumers and the business sector.
Exports of goods and services rose 7.8 percent in the period ending March from 7.1 percent a year earlier, while imports of goods and services grew 6.1 percent, down from 10.3 percent growth a year earlier.
WEAK SERVICES
In the macroeconomic sector, services, which accounted for 63.2% of total GDP, grew by 4.5% in the first quarter. However, this was slower than last year’s 6.2%.
Chinabank Research said services posted their weakest performance since the start of the pandemic, although the highest growth came from public administration, education and health. “The reduction in discretionary spending may continue to weigh on service activity, particularly in trade, transportation, accommodation, food services, and entertainment,” it said.
Agriculture, forestry and fishing, which contributed 8.1 percent to GDP, decreased by 0.2 percent in the first quarter. This was a reversal of the 2.2% growth last year.
Manufacturing, which accounts for 28.7% of GDP, decreased by 0.1% in the January to March period. This was a reversal of last year’s growth of 4.6%.
Gross national income grew 3% annually in the first quarter, down from 7.2% a year ago and 4% in the fourth quarter.
At the same time gross basic income grew by 4.5% in ffirst quarter, down from 22.2% in the same quarter in 2025 and 11.9% in the previous quarter
STAGFLATION
Meanwhile, Mr. Balisacan said the country has not yet seen stagflation despite the slowdown in GDP growth, inflation at 7.2% in April and 5% unemployment rate in March.
“I don’t see it that way. Stagflation, in your standard books, should be considered as the existence of three things at the same time. One is high inflation, when prices keep rising. One is slow growth or stagnant economy, and the third is unemployment,” he said.
“I think that before the start of the crisis, we are seeing economic development,” he added.
However, some analysts say that the country is facing stagflation that may continue throughout the year.
“The Philippines is going through a period of stagflation, with a combination of slowing (and very weak) GDP growth and rising inflation that puts the central bank in an untenable position,” Mr Leather said.
“The Philippines is facing two problems, as economic growth is already weak due to the conflict over flood control and now it is facing difficulties due to rising oil and food prices, as we are facing a deflationary situation – inflation accompanied by weak growth,” said Chinabank.
Nicholas Antonio T. Mapa, chief economist, Metropolitan Bank & Trust Co.flict “with less private investment and increased household debt.”
“Growth in the coming quarters will be further challenged as inflation and the Bangko Sentral ng Pilipinas (BSP) will find it difficult to raise rates,” he said.
“How can the strengthening of the policy be done to reduce the oil prices in the world, but what is clear is that the economy will be facing a crisis regardless of the National Government. he can still improve in the second half,” he added.
Deepali Bhargava, regional head of Asia-Pacific research at ING, said the first-quarter print “points to a much weaker growth path than expected in 2026.”
“We do not believe this weak GDP print will prevent the BSP from continuing with a rate hike in June,” he said in an email.
The BSP has signaled further rate hikes to keep inflation under control amid rising price pressures after April printing exceeded its benchmark. Last month, the BSP introduced its first rate hike of 25 basis points in two and a half years to bring the policy rate to 4.5%.
ANZ Chief Economist Sanjay Mathur and Foreign Trade Analyst Kausani Basak said the Philippine economy remains in a challenging environment amid rising inflation, weak growth and persistent external storms.
“Overall, risks to short-term growth remain weak, especially if inflation remains high or global economic conditions deteriorate,” they said in the report.
