THE economy grew at its slowest non-pandemic pace in 14 years in 2025, pulled down by a corruption scandal and climate change-related weather woes, data showed on Thursday.
The 4.4-percent growth for the entire year was well below a June projection of 5.5 percent to 6.5 percent, which was already a downgrade that took into consideration the imposition of United States tariffs and “global uncertainties.”
The full-year figure was the worst since a 3.9-percent rate in 2011 — though it contracted 9.5 percent in 2020 during the Covid crisis, data from the Philippine Statistic Authority showed.
Gross domestic product (GDP) expanded 3 percent in the fourth quarter from a year earlier, the slowest pace since the first quarter of 2021 and significantly short of the government’s 5.5-percent to 6.5-percent target for the year. This marked the second straight quarter that targets have been missed.
Household consumption grew 3.8 percent in the fourth quarter year on year, and government spending rose 3.7 percent, both easing from 4.1 percent and 5.8 percent in the previous quarter.
Gross capital formation contracted 10.9 percent, a sharper decline from 2.8 percent in the third quarter.
Economic Planning Secretary Arsenio Balisacan told reporters on Thursday that a spiraling scandal over bogus infrastructure projects had weighed heavily on short-term growth.
“Admittedly, the flood corruption probe scandal weighed on business and consumer confidence,” Balisacan said of alleged fraud that is believed to have cost taxpayers billions of dollars.
Construction spending has cratered since the scandal over bogus flood control projects erupted in July, when President Ferdinand Marcos Jr. made it the centerpiece of his State of the Nation Address. Scores of officials, lawmakers and construction firm owners have now been implicated.
Balisacan said Thursday that even normal figures from the sector would have improved 2025’s growth numbers dramatically.
“If public construction [had not] been flat, GDP for 2025 would have actually increased from 4.4 to 5.5 percent,” he said of a 0.24-percent dip for the year.
“Weather and climate-related disruptions” had also taken a toll, he said, with missed work days and school closures amid heat waves and nationwide flooding contributing to depressed domestic demand.
Balisacan predicted that reforms being enacted due to the infrastructure scandal would lead to a bounce back in 2026.
“We see 2026 as our rally point. We are accelerating efforts to restore public trust through improvements in governance and public services,” Balisacan told a press conference.
Growth is expected to regain momentum, with the government forecasting a 5-percent to 6-percent expansion in 2026 and further acceleration in 2027.
“The resulting measures and governance reforms are necessary to strengthen accountability, improve project quality, ensure better value for scarce public resources and build our capacity for faster and more sustainable growth in the years ahead,” Balisacan said.
But London-based analysts Capital Economics, noting a 18.4-percent plunge in public investment, warned growth would likely remain soft, while predicting interest rate cuts in the near term.
“Overall, we expect the economy to grow by around 4.5 percent in 2026, which would remain below trend and consensus (5.3 percent),” said Asia economist Shivaan Tandon.
“With inflation set to stay low, we think the central bank has scope to deliver a couple more interest rate cuts in the coming months.”
Bangko Sentral ng Pilipinas Governor Eli Remolona Jr. said last week that a weaker-than-expected fourth-quarter GDP would factor into the central bank’s decision at its Feb. 19 policy meeting.
The central bank has cut its benchmark rate by a cumulative 200 basis points to a three-year low of 4.5 percent in the current cycle, which Remolona has said was nearing its end.
But some analysts expect more rate cuts this year.
Capital Economics, for instance, is penciling in additional reductions to borrowing costs in the coming quarters following the disappointing data.
“Authorities have pledged to restart infrastructure projects, which should help to reverse some of the recent weakness in activity. Even so, risks to the outlook remain firmly skewed to the downside,” Capital Economics said.
Long-term target still holds
Balisacan said the slowdown does not derail the government’s ambition of becoming a high-income country by 2040.
“Our aspiration as a country, as reflected in our long-term plan, is to join our neighbors as a developed country in 2040,” Balisacan told reporters in a briefing on Thursday.
“Our average growth is still quite close to 6 percent for that long period from 2010 to present. And we must keep on driving for high growth,” he added.
The 2040 aspiration, he said, was laid out in a national long-term plan crafted in 2015, at a time when annual growth of 6 to 8 percent was assumed to be achievable. Since then, major disruptions — most notably the Covid-19 pandemic — have set the economy back.
Despite these setbacks, Balisacan said the country’s average growth from around 2010 to the present has remained close to 6 percent, giving policymakers confidence that the long-term target remains attainable.
He pointed to the latest growth assumptions approved by the interagency Development Budget Coordination Committee, which set this year’s growth outlook at 5 to 6 percent, rising to 5.5 to 6.5 percent next year and further to 6 to 7 percent by 2028 and beyond.
Balisacan said these projections reflect the government’s belief that the Philippine economy’s underlying potential growth rate is about 6 percent, and could be pushed even higher with the right policies.
“We need all this good governance and good economic management to realize that and actually, if the investments that we are making in human capital, particularly education and health, and in infrastructure, that can elevate that potential to even higher one,” Balisacan said, noting it could hit 6.5 to 7.0 percent.
“So, again, our trust is to keep the fundamentals sound. We must not be distracted by political noises,” he added. “Otherwise, you sacrifice those sound fundamentals for short-term gains and that’s not good for long-term growth.”
The Philippines remains classified as low-middle income after it failed to reach the upper-middle-income gross national income (GNI) per capita threshold of $4,496 to $13,935. GNI per capita rose to $4,470 last year from $4,320 in 2023, but remains in the lower-middle-income range of $1,136 to $4,495.