THE economy may have reached the bottom of its current slowdown in the second quarter, with economists expecting growth to improve in the second half as unfavorable base effects fade and government and private-sector activity gradually recover.
“For me, the second quarter is the bottom. But as mentioned, I don’t think the recovery is a given, so a lot has to work,” Philippine National Bank economist Alvin Arogo said during The Manila Times forum on “The New Banking Reality” Tuesday.
Arogo said the second quarter was particularly weak because it was being compared with a period when public construction figures were elevated.
This means that even without assuming a strong rebound in economic activity, the lower base from last year could mechanically lift year-on-year growth in the second half.
“So the shock of the second quarter is, I think, the bottom,” Arogo said.
Gross domestic product (GDP) growth slumped to 2.3 percent, still due to lingering effects of the corruption scandal last year, which dragged investments.
Gross capital formation — a measure of investments — contracted by 9.2 percent, worsening from the first quarter’s -3.1 percent and reversing from the 0.9-percent growth in the second quarter of 2025.
Bank of the Philippine Islands Senior Vice President and lead economist Emilio Neri Jr. said the economy could grow by close to 3 percent for 2026, implying a stronger second half.
Neri said the improvement would partly reflect a more favorable comparison with last year, when public construction activity was unusually high.
“We are now comparing apples with apples,” Neri said, noting that public construction appeared to have been overstated in the first half of last year.
He argued that activity dropped after investigations into public construction projects began in the third quarter, creating a low base against which the second half of 2026 will be measured.
“The second quarter was awful because it was being compared with origins, where you have an overstated public construction figure, largely because of that,” he said.
Neri said the economy could grow by around four percent or more in the second half if several factors fall into place, including stronger activity in education, construction of classrooms and a recovery in the electronics sector.
This would allow full-year growth to reach around 3 percent, or potentially more, he added.
He said that stronger growth would depend less on simply increasing government expenditures and more on ensuring that public funds are directed toward productive projects with strong economic benefits.
“If you can do something like that moving forward, then you can go back to the faster growth rates of 6 to 7 percent,” Neri said.
Meanwhile, BDO Capital & Investment Corp. President Eduardo Francisco said the improvement also faces risks from inflation and geopolitical developments.
Francisco said businesses have gradually adjusted to the prolonged conflict in the Middle East by adjusting prices and operations in response to changes in fuel and other costs.
However, he cautioned that adaptation does not mean the economic impact has disappeared.
Rather, businesses have adjusted to a “new normal” of greater uncertainty, while the conflict continues to affect the trajectory of economic activity.
