THE country’s economy, as measured by the growth of gross domestic product (GDP), further slumped in the third quarter amid the lingering impact of the Middle East war and as investment sentiment remained subdued.
The Philippine Statistics Authority on Monday said GDP growth dropped to 2.1 percent in the July to September period.
This is lower than the 2.4-percent revised growth seen three months earlier and the 4.0 percent posted during the same period a year ago.
The July-September slowdown marked the fifth consecutive quarter that the growth had slumped. Excluding the pandemic, the third quarter figure is also the slowest since the 1.8 percent recorded in the fourth quarter of 2009.
Year to date growth averaged 2.5 percent, below the government’s downwardly revised 3.5- to 4.5-percent target for the year.
National Statistician Dennis Mapa said the slowdown was mainly due to a contraction in agriculture, forestry and fishing and industry. Both contracted by 4.8 percent and 0.003 percent, respectively, reversing from from growth of 2.9 percent and 0.7 percent in the previous year.
Services, meanwhile, posted a year-on-year growth of 3.7 percent, slowing from 5.5 percent in the same period last year.
Gross capital formation remained negative at 0.2 percent in the third quarter from -2.0 percent in July to September 2025.
Household final consumption expenditure growth further slowed to 2.4 percent from 4.0 percent in the third quarter of 2025.
Government spending, however, rebounded to 6.8 percent from 5.8 percent in the third quarter of 2025.
Public construction declined for the sixth consecutive quarter to 15.1 percent from 33.4 percent.
Urgent action needed
Socioeconomic Planning Secretary Arsenio Balisacan said that weather disruptions and delays in project validation and payments constrained infrastructure delivery.
“These delays affected contractors’ capacity to pay workers, purchase materials, and undertake further work,” Balisacan said.
“Governance concerns and uncertainty also weighed on confidence,” he added.
Growth started to slow since a massive corruption scandal was revealed last year, which dragged the economy down to 4.0 percent in 2025.
Balisacan said the country needed to grow by 6.3 percent in the last three months of the year to be able to reach at least the lower-end target.
However, it would require “stronger investment, easing price pressures, and renewed confidence.”
He argued that energy shocks, El Niño and implementation delays remained risks.
“Today’s report calls for urgent action to address the bottlenecks holding back investment and implementation, and restore stronger growth,” Balisacan said.
“We must get investments moving again,” he added.
Balisacan said predictable policies, fiscal discipline and credible institutions were essential to rebuilding confidence.
“National agencies and local governments must streamline approvals, reduce redundant requirements, and integrate digital systems so that investment commitments become operating enterprises,” Balisacan said.
Stagflation risk
Citi Head of Emerging Market Economics and Chief Asia Economist Johanna Chua told reporters in a briefing on Monday that the country may now be experiencing stagflation.
Stagflation is a combination of slower economic growth and relatively high inflation.
“If you want to say really weak growth and high inflation, then yeah, it’s already [stagflation],” Chua said.
She noted that inflation was already above the central bank’s 2.0 to 4.0 percent target at 7.8 percent while growth remained subdued.
“You know, Philippines used to grow 5 to 6 percent and obviously, in that definition, yeah, you can say stagflation, you can say slowflation,” Chua said.
“It’s not a good macroeconomic outcome,” she added.
Metrobank chief economist Nicholas Antonio Mapa said this raised the case for the central bank to hold rates next month.
Mapa said that on a quarter-on-quarter basis, the economy was barely moving, up a modest 0.07 percent on a seasonally adjusted basis.
“Given that rate hikes have only a marginal effect on controlling supplies side inflation, BSP can push back on calls for overzealous tightening at this stage and help safeguard whatever is left of growth momentum,” Mapa said.
“Furthermore, given all the challenges, it wouldn’t make a whole lot of sense to step hard on the brakes when we’re driving uphill on rocky terrain,” he added.
Moreover, Chinabank chief economist Domini Velasquez said that with a sizeable negative output gap and weak domestic demand, additional tightening would “unduly burden growth without addressing supply-side inflation pressures.”
“We believe the BSP will be more cautious before considering further rate hikes, even if inflation rises to around 8 percent in November,” Velasquez added.
Losing momentum
Makati Business Club (MBC) Executive Director Julia Abad and SM Investments Corp. (SMIC) Vice President and Group Economist Robert Dan Roces said the third-quarter performance indicated the economy was “losing and struggling to regain its momentum.”
Roces cited weakened consumer spending as a primary bottleneck, noting that consumption growth slowed to 2.4 percent.
Abad also cited declining purchasing power, saying it is among the factors weighing on economic activity.
Roces also pointed to external factors, such as the US-Iran war and the oil-driven inflation, which raised the costs of fuel, transport, electricity and food.
He added that this forced households to prioritize essentials over discretionary spending.
Both Roces and Abad noted that cautious private investment, the lag in infrastructure spending, and rising business costs are weighing on and constraining economic activity.
Abad also pointed to systemic competitiveness issues, including workforce readiness, energy affordability, infrastructure gaps, regulatory predictability and institutional stability.
She also raised future vulnerabilities such as the looming risk of Super El Niño, which threatens agricultural output, food security, and water and power supply.
Going beyond ‘ayuda’
Roces said easing inflation pressures and restoring household purchasing power should be among the country’s priorities.
Abad added that the government must move beyond “ayuda” or short-term cash transfers.
“We must also pursue sustainable solutions that go beyond short-term ‘ayuda’ by strengthening social protection, ensuring affordable access to essential goods and services, and helping businesses sustain operations and employment,” she said.
The business sector also called for an acceleration in infrastructure spending and for the rebuilding of business confidence to revive private investment.
Abad also emphasized the need for governance and structural reforms. She said that the country must ensure a transparent and accountable budget process with strict oversight on infrastructure spending.
She also welcomed the Senate’s creation of the RISE Ad Hoc Committee, describing it as an opportunity to push forward a more coordinated response through meaningful public-private sector engagement.
The business leaders also stressed that the government must address structural domestic constraints and external shocks to ensure a durable, inclusive, and job-generating economic recovery.
