THE economy grew by a lower-than-expected 2.3 percent in the second quarter (Q2), the weakest expansion since the Covid-19 pandemic, following declining investments, slower household spending and a sharp drop in public construction.
The Philippine Statistics Authority on Friday reported that gross domestic product (GDP) growth had slowed from 2.8 percent in the first three months of the year and the 5.4 percent recorded in April-June 2025, bringing first-semester growth to 2.6 percent — well below the government’s downwardly revised 3.5- to 4.5-target for the year.
Analysts polled by The Manila Times had forecast a slowdown to 2.6 percent due to the inflationary impact of the war in the Middle East and the continued fallout from last year’s massive flood control project scandal.
National Statistician Claire Dennis Mapa said the second-quarter growth was the weakest since the first three months of 2021, when the economy contracted by 3.8 percent during the pandemic. Excluding the pandemic period, it was the slowest quarterly expansion since the fourth quarter of 2009, when GDP grew by 1.8 percent.
The slowdown was broad-based, with most major sectors losing momentum during the quarter.
The industry sector contracted by 2.4 percent, reversing from the 2.1-percent growth recorded a year ago and the 0.1 percent posted in the first quarter, while agriculture, forestry and fishing expanded by a slower 2.7 percent from 7.0 percent. It rebounded, however, from the -0.3 percent seen in the first quarter.
The services sector, which remained the biggest contributor to economic growth, eased to 4.5 percent from 4.6 percent three months earlier. It was markedly lower than April-June 2025’s 6.9 percent.
On the expenditure side, household final consumption expenditure, which accounts for the largest share of the economy, grew by 2.8 percent, slowing from 3.0 percent in the first quarter and 5.2 percent a year earlier.
Government spending markedly improved to 8.3 percent from 4.8 percent in the first quarter but was slower than the 8.7 percent in the second quarter of 2025.
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.
‘Lower than we hoped’
Malacañang said the 2.3-percent growth was “lower than we hoped” and blamed the result on the impact of the war in the Middle East.
In a statement, Presidential Communications Undersecretary Claire Castro said the deceleration was a temporary setback driven by extraordinary external and domestic factors. She added that the slowdown would not define the country’s broader trajectory.
“This result was lower than we had hoped. The numbers show the challenges we have faced, but they do not determine the country’s long-term direction,” she said.
Castro added that public construction also experienced a temporary pause as the government intensified efforts to root out corruption in infrastructure spending.
“As the government continues to speed up spending and release budgets more quickly, we hope the economy can start to pick up in the second half of the year as well,” she said.
Despite the deceleration, Castro pointed to gains in several sectors.
Exports expanded by 12.2 percent on the back of strong demand for semiconductors, electronics, artificial intelligence hardware and agricultural goods. Manufacturing, meanwhile, grew by 2.6 percent.
To regain economic momentum in the second half, Malacañang said the government would be focusing on fast-tracking high-impact infrastructure projects, maintaining price stability and expanding export competitiveness.
Castro noted that the government will continue providing targeted relief to vulnerable sectors, including the Expanded Unified Package for Livelihoods, Industry, Food and Transport (Uplift) program covering 7.5 million families, the P12-per-liter fuel subsidy for public utility drivers and the Bawat Bayan Makikinabang Rice Program.
To support the middle class and revive consumer confidence, the administration is likewise working closely with Congress to pass priority legislative measures such as proposed Electric Power Industry Reform Act amendments banning distribution utilities from passing on system losses and VAT to consumers, the Sariling Kuryente Act, raising the personal income tax exemption threshold to P350,000, exempting small businesses from the minimum corporate income tax, a general tax amnesty and abolishing the travel tax.
‘Continuous cautiousness’
Socioeconomic Planning Secretary Arsenio Balisacan, meanwhile, said a steep decline in public construction was the primary factor behind the contraction in investments and the weakness in the industry sector.
He said public construction fell by 32.4 percent during the quarter as infrastructure agencies, particularly the Department of Public Works and Highways (DPWH), remained cautious following last year’s corruption scandal.
“The decline was primarily driven by the continuous cautiousness of the infrastructure-related agencies, particularly the DPWH,” Balisacan told reporters.
He said some government personnel had been hesitant to move projects forward while investigations and personnel changes were ongoing, but added that confidence was gradually returning as the DPWH started awarding contracts in June and July.
“We expect those to accelerate in the coming months,” Balisacan said, noting that the Department of Budget and Management had already released funds for infrastructure projects.
He added that much of the budget that was not spent in the first half would still be disbursed in the remaining months of the year, providing a buffer for economic growth.
To achieve the government’s revised full-year growth target of 3.5 to 4.5 percent, the economy will need to expand by at least 4.4 percent in the second half, Balisacan said.
He said the government remained optimistic that growth would improve, citing an expected rebound in public infrastructure spending, easing inflation and stronger business confidence.
He also highlighted exports as a bright spot, noting that stronger demand for electronics and semiconductors used in artificial intelligence technologies supported the country’s export performance.
Asked about the risk of stagflation, which is an economic condition combining slow growth, high unemployment and rising inflation, Balisacan replied, “I don’t think that we are at that stage.”WITH ALLEN LIMOS
