By Lourdes O. Pilar, Researcher
The Philippine economy MAY lose its momentum fThe first quarter, was weighed down by weak domestic purchasing power, low government spending, and sluggish business activityfdence, and rising global energy prices linked to the Middle East conflict, say economists.
Philippine gross domestic product (GDP) is likely to grow by 3.4% in the January to March period, according to the median forecast of 21 economists and analysts polled BusinessWorld.
If possible, this would be slower than the revised 5.4% expansion recorded in the first half of 2025, and short of the government’s 5%-6% target for this year.
However, it will be much faster than the 3% growth in the fourth quarter of 2025.
The Philippine Statistics Authority is scheduled to release first quarter GDP data on May 7.
“Home use [is] is set to moderate as consumers work to manage debt and face higher energy costs,” said Nicholas Antonio T. Mapa, an economist at Metropolitan Bank & Trust Co., in an email.
Mr. Mapa, which sees a GDP growth of 3.4% in the first quarter, said that government spending is expected to decrease, based on the latest figures on the release of funds, as well as capital formation, which continues to feel the impact of the tightening of monetary policy implemented in 2022 to 2024.
“We were starting to see a decent pickup to start the year, but this may have ended in March due to increased risk,” said Mr.
Azril Rosli, an economist at Maybank Investment Bank, said he sees GDP increasing by 4.5% in the first quarter, in line with domestic demand but also reflecting inflationary pressure and global uncertainty.
“The estimate reflects the balance between domestic demand that is still strong supported by government spending and service activity and the early awakening from high income, which is starting to erode domestic purchasing power. Investment remains stable but cautious, while foreign demand is broadly stable,” said Mr. Rosli in an email.
In the fourth quarter of 2025, household consumption, which accounts for more than 70% of GDP, grew by 3.8% – the weakest pace since the 4.8% decline recorded in the first quarter of 2021.
Government final consumption expenditure, which makes up 12% of GDP, grew by 0.7% in the fourth quarter, down from 5.8% in the third quarter and a 9.5% increase in the last three months of 2024.
On the other hand, the composition of the country’s gross capital, the share of economic investment, decreased by 9.4% in the last three months of 2025, significantly higher than the decrease of 2% in the third quarter and the reverse growth of 5.8% in the fourth quarter of 2024.
Capital expenditures accounted for about 20% of the country’s GDP in the fourth quarter.
Marco Antonio C. Agonia, an economist at the University of Asia and the Pacific, said GDP is likely to grow by 3.1% year-on-year due to “the continuing effects of the loss of confidence from the flood control tree and the economic storms from the war in the Middle East.”
“Lower spending by the National Government in the first quarter will hamper job growth, especially compared to last year’s pattern of spending on infrastructure spending. Consumer spending will be reduced accordingly, with no multiplier effect from government spending,” he said in an email.
MIDDLE EAST INFLUENCE?
Domini S. Velasquez, chief economist at China Banking Corp., said the Philippines’ GDP growth may have grown by 3.3% in the first quarter, mainly due to the global energy shock caused by the conflicts in the Middle East.
“On the production side, service activity decreased, especially in the transportation sector, as families and companies adjust their behavior due to the increase in fuel prices. These changes include the widespread adoption of work-from-home arrangements, reduced public transportation, and flight cancellations,” he said.
The US-Israel war against Iran, which began on Feb. 28, disrupted oil supplies worldwide and increased crude oil prices by nearly 50%.
The Philippines is a net consumer of crude oil and its main source is from the Middle East, which is the world’s largest oil producing region.
Philippine National Bank economist Alvin Joseph A. Arogo said GDP growth remains friendly mainly due to “weak consumer and business confidence due to the ongoing impact of corruption investigations and conflicts in the Middle East.”
Miguel Chanco, emerging Asia economist at Pantheon Macroeconomics, said that although he sees GDP growth of 3.8% in the first quarter, this does not reflect the impact of the oil crisis.
“It will take some time before the economic indicators ‘feel’ the energy price crisis caused by the war in the Middle East. It will certainly not be a major factor in the GDP numbers for Q1. However, the main pressure that may result from Q2 and beyond is on the growth of private consumption which has already been defeated, which is just beginning to show signs of stabilization,” he said.
QUICKNESS OF POWER
Patrick M. Ella, an economist at Sun Life Investment Management and Trust Corp., said inflationary pressures may affect consumer activity.
Inflation rose to 4.1% in March. This was the fastest pace in nearly two years or since 4.4% in July 2024, and likewise marked the first time that headline printing breached the BSP’s 2%-4% target.
In the first three months, headline inflation reached 2.8%.
“The increase in inflation in March is important because it shows that it has started to pass due to the oil shock. When the cost of fuel and goods rise, so do food, transportation, and other essentials, which weakens the purchasing power of households,” said Marites M. Tiongco, professor and head of the School of Economics at De La Salle-mail University.
Harumi Taguchi, chief economist at S&P Global Market Intelligence, said high inflation and weak remittances likely kept real private consumption weak in the first quarter and will continue to do so in subsequent quarters.
The Philippine central bank now expects inflation to fall to 6.3% this year and 4.3% next year, both above its 4% ceiling, before returning to its tolerance in 2028.
WATCHING
Meanwhile, economists expect second quarter GDP data to show the full impact of the global oil shock.
“I would expect Q2 growth to slow down to 3.6% to 4.2%, because that’s when households are more likely to feel the full impact of the oil shock with higher costs of food, transportation, and electricity. When purchasing power decreases, consumer spending also softens, and that becomes a real drag on growth,” Ms. Tiongco said.
Ruben Carlo O. Asuncion, chief economist at Union Bank of the Philippines, said the growth outlook will depend on “the persistence of oil-induced inflationary pressure, the pace of spending in the coming quarters, and policy moderation.”
Ms. Taguchi of S&P Global, expects GDP to remain weak in the second quarter.
“Because the biggest impact on the economy is caused by price and supply shocks, it would be successful if the plans include diversification of oil sources from other countries,” he said..
For Jun Hao Ng, an assistant economist at Oxford Economics, the country’s economic performance in the second quarter may be weak as oil prices may remain high.
“We should continue to see strong inflation in the quarter, which will limit any strong recovery that was initially expected before the US/Israel-Iran conflict. In order to maintain economic growth, the government is likely to introduce more fuel subsidies, although financial constraints will reduce the level of programs,” he said.
