THE Philippine economy may have entered the third quarter with weaker momentum than expected, a Fitch Group unit said, raising the downside risk to its already subdued 2026 growth outlook.
“Early indicators suggest the Philippine economy entered Q3 with less momentum than anticipated, raising downside risks to our 2026 growth forecast of 3.3 percent,” BMI Country Risk & Industry Research said in its latest commentary.
BMI currently expects the Philippine economy to grow by 3.3 percent this year, below the government’s 3.5- to 4.5-percent target range.
The forecast would require the economy to expand by at least 3.9 percent in the second half of the year after gross domestic product (GDP) grew by just 2.6 percent in the first half.
BMI said it had previously expected increased public capital expenditure and favorable base effects to support a stronger recovery in the second half of the year.
But developments during the third quarter indicate that the rebound may be weaker than initially anticipated.
“The increased scrutiny probably delayed project implementation further, weighing on both public and private construction,” BMI said.
“This implies that public capex (capital expenditure) likely remained subdued in Q3, contrary to our expectation of a meaningful pick-up,” it added.
As a result, BMI estimated that weaker public capital expenditure in the third quarter could reduce its 2026 growth forecast by around 0.2 percentage point to 3.1 percent.
“We are likely to make this adjustment if July-August capital outlay data confirm our assessment,” BMI said.
The potential downgrade would put the research firm’s forecast even further below the government’s official growth target for the year.
Consumption also under pressure
Aside from weak investment, household consumption is also showing signs of strain, limiting another key source of economic growth.
BMI said elevated inflation has continued to erode household purchasing power and discourage discretionary spending. Labor market conditions have also deteriorated.
The country’s unemployment rate rose to a four-year high of 6.0 percent in July from 4.9 percent in June.
While the June-July period typically sees an increase in people entering the labor force following graduation, BMI said the magnitude of the rise in unemployment pointed to broader weakness in the labor market.
“The scale of the increase points to broader labor market weakness, reinforcing household caution,” BMI said.
Furthermore, it cautioned that severe weather conditions also appear to have added another layer of pressure on economic activity during the third quarter.
BMI estimates placed infrastructure damage at P14.3 billion and agricultural losses at P4.4 billion.
It noted, however, that these estimates did not include the broader economic costs arising from transportation disruptions, lost working days, and spillovers from weaker agricultural production.
“As such, these weather-related disruptions are likely to further reduce the likelihood of a meaningful rebound in Q3 growth,” it said.
Inflation risks complicate outlook
BMI said the renewed risks of higher inflation could create an additional challenge for the economy and monetary policy.
Headline inflation eased for a fourth consecutive month to 6.1 percent year-on-year in August.
Despite the moderation, the research firm said price pressures remained broad-based and expected inflation to accelerate again toward the end of the year.
For this year, BMI forecasts Philippine inflation to average 5.7 percent, above the government’s 2.0 to 4.0 percent target.
“Renewed Middle East tensions have intensified the upside risks to our inflation forecast,” BMI said.
Houthi attacks in the Bab el-Mandeb Strait and reported damage to Saudi Arabia’s East-West pipeline have contributed to renewed pressure on global oil markets.
Brent crude prices have subsequently risen above $100 per barrel, a level last seen in July, leading to several fuel price increases in the Philippines since late August.
Despite the higher inflation, BMI said the Bangko Sentral ng Pilipinas (BSP) will “stand pat for the rest of 2026 for now, as weak economic growth raises the cost of further tightening.”
“We will reassess our view after the September inflation release, with a further 25-50bps (basis points) hike to 5.25-5.50 percent by end-2026 the most likely alternative scenario,” BMI said.
Niña Myka Pauline Arceo
