THE Philippines’ gross domestic product (GDP) growth missed targets for the third year in a row in 2025, falling to 4.4 percent for the full year on the back of sharp year-on-year deceleration to 3.0 percent in the fourth quarter (Q4). The disappointing 2025 outcome marked the slowest expansion in 11 years, with the exception of the pandemic-triggered minus-9.5-percent contraction in 2020. In the wake of this unwelcome news from the Philippine Statistics Authority (PSA), there has been a great deal of concerned commentary offered about the direction of the economy, but few solutions.
The main culprit in dragging down GDP in the fourth quarter, and consequently for the entire year was the contraction in investments, which declined by 7.2 percent in Q4 after posting an inconsequential 0.5-percent year-on-year growth rate in Q3. Most of this was due to the ongoing corruption scandal, which on the one hand has put most investors into a “wait-and-see” attitude, and on the other, has almost completely halted public construction. Public construction is ordinarily a significant driver of investment, but it contracted by 41.9 percent in Q4, and does not at this point look to recover very quickly.
Cooling investment may not be the most worrisome indicator in the slowing growth rate, however. Household consumption accounts for 70 percent of GDP, and while it did post a positive growth rate in Q4 2025, that slowed to 3.8 percent from 4.1 percent in the previous quarter. That is uncharacteristic of the normal pattern of consumption, which tends to accelerate in the last quarter of the year due to holiday spending. As analysts have noted, cooling consumption occurred despite inflation being at a very benign 1.7 percent for Q4, and averaging the same for all of 2025. Again, the corruption scandal can be blamed for much of the downturn in consumer confidence, but public perception of high prices has persisted despite an overall low inflation rate.
The outlook for 2026 is not promising. Oxford Economics, which released an assessment of the prospects for 2026 within minutes of the PSA’s publication of the Q4 and 2025 GDP data, said that it expects recovery to be slow in 2026. Its analysis suggested that improving domestic sentiment, given the importance of consumption to the economy, will be key to reversing the continuing downward trend in GDP growth.
On the other hand, local business groups are urging the government to look away from consumption and focus on broader reforms. Areas needing attention identified by groups such as the Management Association of the Philippines, the Philippine Chamber of Commerce and Industry, the Makati Business Club and the Federation of Philippine Industries, included attracting more diverse higher-value industries; speeding up digitalization within government; improving ease of doing business measures; accelerating infrastructure development; strengthening energy resilience; and of course, pursuing reforms that would prevent future corruption scandals.
Those suggestions are all well and good, but they are not exactly new. Developing industrial policy takes time, building infrastructure takes time and implementing fundamental reforms to improve governance and create a stable investment environment takes time, and we know this because the country’s economic leaders both in and out of government have been expressing these aspirations for decades. The goals are certainly not irrelevant or unworthy; in fact, they are indeed what the country should be doing. But they are parts of a long-term strategy, one that requires consistent application over time. Governance here, where the baby is thrown out with the bath water every three or six years and entirely new policy and planning strategies are introduced, does not lend itself well to the kind of continuity that is needed.
The paradox is that solid GDP growth is as much a prerequisite for investment and industrial development as it is a potential result, and so even though the view that the economy cannot forever be based on household consumption alone is entirely correct, measures need to be taken now to boost growth in the short term. Effectively addressing the corruption scandal will help to improve public sentiment, but only if the immediate reforms — such as the reorganization of the Department of Public Works and Highways — are manifested in rapid developments.
Away from the corruption issue, basic cost-of-living concerns need to be addressed more aggressively, regardless of what the overall inflation rate is; people may know that inflation is low, but the latest GDP numbers clearly show that they are not feeling it, and that is going to continue to be a drag on the economy unless it can be changed.
