The country’s economy grew by 5.6 percent last year, falling short of the government’s 6 to 6.5 percent target as household spending and the agriculture sector contracted in the last three months of the year.

The Philippine Statistics Authority (PSA) reported Thursday that fourth-quarter gross domestic product (GDP) growth slowed to 5.2 percent, down from 5.5 percent in the same period in 2023.

This brings the full-year average growth rate to 5.6 percent, slightly faster than the 5.5 percent recorded in 2023.

“While this falls short of our target, we are positioned as the third fastest-growing economy in the region, trailing Vietnam’s 7.5 percent and China’s 5.4 percent but outpacing Malaysia’s 4.8 percent,” the National Economic and Development Authority (NEDA) said in a statement.

Household consumption slowed to 4.7 percent, down from 5.2 percent in the third quarter. However, government spending grew to 9.7 percent, up from 5 percent quarter-on-quarter.

“There was faster government spending as part of the preparations for the May 2025 midterm elections,” Rizal Commercial Banking Corp. chief economist Michael Ricafort said.

The industry and services sectors expanded by 4.4 percent and 6.7 percent, respectively.

However, the agriculture sector further contracted by 1.8 percent, marking its third consecutive quarter of decline last year. Still, the latest drop was slower than the 2.7 percent decline in the third quarter.

Among the major growth drivers last year were: Construction, which expanded by 10.3 percent; financial and insurance activities, which grew by 9 percent; and wholesale and retail trade and repair of motor vehicles and motorcycles, which increased by 5.6 percent

In a statement, NEDA attributed the slowdown in agricultural activity to six typhoons that struck the country between October and November.

However, NEDA noted that the manufacturing sector, which grew 3.1 percent, helped temper the overall economic decline despite weaker global demand for goods.

“This performance has been hampered by subdued global demand due to geopolitical tensions and the slow recovery of advanced economies. In addition, industries like semiconductors need to update their product offerings to meet changing demand,” NEDA said.

Jonathan Ravelas, financial markets analyst and senior adviser at Reyes Tacandong & Co., said household consumption slowed in the fourth quarter amid elevated inflation and high interest rates, resulting in a disappointing full-year economic growth. He had projected 5.8 percent growth.

Inflation rose to 2.9 percent in December from 1.9 percent in September, according to national statistics.

Meanwhile, the Bangko Sentral ng Pilipinas (BSP) reduced its benchmark lending rates by a total of 75 basis points, bringing it to 5.75 percent last year to support economic growth.

Ricafort said the fourth-quarter GDP growth rate was also lower than his 5.5 percent forecast.

“It was partly affected by the closure of Philippine offshore gaming operators (POGOs), which slowed down the real estate and property sector and other related industries,” he said.

He also pointed to the peso’s depreciation, noting that the exchange rate hit P59 per US dollar on November 21, which contributed to weaker household consumption in the last quarter.

Additionally, investments dropped to 4.1 percent, down from 13.7 percent quarter-on-quarter, as investors awaited the implementation of the Corporate Recovery and Tax Incentives for Enterprises to Maximize Opportunities for Reinvigorating the Economy (CREATE MORE) Act, which was signed into law on November 11.

Moving forward, Ricafort said public and private consumption and investments should improve as BSP continues to cut rates, taking cues from both local and global economic factors, particularly the monetary policy decisions of the US Federal Reserve.

HSBC economist Aris Dacanay projects the BSP will reduce its policy rate by another 75 basis points this year, partly due to falling global rice prices.

“Global rice prices are currently declining, and we likely haven’t seen the bottom yet, especially with India resuming its non-basmati rice exports. The full effect of the tariff rate cut on rice imports has also yet to fully filter through to retail rice prices,” he said.