Analysts: Q2 growth likely slowed to 2.6%

ECONOMIC growth could have slowed further in the second quarter due to the inflationary impact of the war in the Middle East and the continued fallout of last year’s massive flood control project scandal.

The median forecast in a Manila Times poll of economists was 2.6 percent, lower than the 2.8 percent seen in the first three months of 2026 and the 5.4 posted a year earlier. It is also well below the government’s downwardly revised 3.5- to 4.5-percent target for the year.

Second-quarter gross domestic product (GDP) growth data will be released by the Philippine Statistics Authority this Friday, Aug. 7.

With the lowest forecast of 1.8 percent, Pantheon Macroeconomics economist Miguel Chanco said the “weakening in sequential momentum should stem mainly from stagnant public spending.”

With government infrastructure expenditure still showing signs of weakness, he said this “will also crimp fixed investment, an area that seems to have been massively hit by the uncertainty stemming from the Middle East war.”

Bank of the Philippine Islands lead economist Emilio Neri Jr. said growth likely slowed to 1.9 percent, mainly due to another sharp contraction in public infrastructure spending, weaker private investment and slower household consumption.

“The quarter also marked the full transmission of the US-Iran conflict to the domestic economy, with elevated oil prices and heightened geopolitical uncertainty further dampening business confidence and overall economic activity,” he added.

Philippine National Bank economist Alvin Arogo, whose forecast is 2.4 percent, said the oil supply shock from the Middle East war would have led to weaker spending by both businesses and consumers.

“However, the subdued private consumption could have been partially offset by some uptick in government spending,” he said.

With a forecast of 2.6 percent, Union Bank of the Philippines chief economist Ruben Carlo Asuncion said growth would have been constrained by “weak consumer and business confidence, cautious investment activity and soft domestic demand.”

“Key risks include higher oil prices due to geopolitical tensions, renewed inflation pressures, and continued weakness in domestic demand,” he added.

“Potential tailwinds include lower inflation, policy rate cuts, stronger fiscal spending, and a recovery in consumer and business confidence.”

HSBC Global Research senior economist Aris Dacanay and China Bank chief economist Domini Velasquez, meanwhile, said growth could have stayed subdued, edging down to 2.7 percent.

Dacanay said infrastructure spending had yet to recover since last year’s corruption scandal, cutting growth to about half of its potential.

“Apart from a wobbly labor market, the spike in inflation — brought about by the turmoil in the Middle East — likely tightened, if not shrank, households’ purchasing power and firms’ margins,” he added.

“With weak consumer demand on the back of high prices, the business confidence index has fallen to its lowest level since 2001, even when we include the Covid-19 pandemic years.”

Velasquez also said that elevated inflation would have squeezed household budgets while public construction activity had yet to recover.

She said growth could “could gain some momentum in the second half of the year as government agencies address infrastructure spending backlogs.”

However, a prolonged El Niño remains a downside risk to agricultural production.

With the highest forecast of 3.5 percent, ING Economics said government spending should have begun to recover after contracting in the previous months.

“Export growth is also expected to strengthen relative to the first quarter, with the Philippines benefiting from deeper integration into the AI supply chain,” it said.

“However, higher oil and non-oil import prices are likely to weigh on the trade balance, resulting in a smaller net contribution from external demand to overall GDP growth.”