The backlash from the flood control scandal has started to manifest in the economy’s growth, which slumped in the third quarter to 4 percent, a 1.2-percentage point drop from a year ago.

The government underspent on public projects during the period, primarily in infrastructure, leading to a sharp contraction in public construction.

Government statistician Dennis Mapa said infrastructure spending in the quarter fell 26.2 percent, the most since a 28.6-percent drop in 2011 that accompanied a scandal over pork barrel spending.

“Evidence that the flood control corruption scandal would translate to a pullback in government spending has emerged, given the 26.2 percent year-on-year contraction in public construction. The impact of the floods was also reflected in a slowdown in consumption,” said Jomar Lacson, head of macro and sustainability research at ATR Asset Management.

“The weaker-than-expected growth dragged the Philippine Stock Exchange Index (PSEi) down by 1.31 percent to 5,739.37, as selling pressure continued. At the same time, the peso slid to 59 per dollar following the release of the Gross Domestic Product (GDP) data that came in well below consensus,” according to Luis Limlingan, managing director at Regina Capital Development Corp.

As a result, the economy will likely miss the Bangko Sentral ng Pilipinas’ (BSP) full-year growth target of 5.5 percent to 6.5 percent, Secretary Arsenio Balisacan of the Department of Economy, Planning, and Development (DepDEV) said.

“In addition, corporate earnings results were not strong enough to offset the negative impact of the weaker GDP print and the depreciation of the peso to 59 per US dollar,” according to the DepDEV chief.

Balisacan attributed the lethargic growth to “stricter validation measures for Department of Public Works and Highways’ (DPWH) civil works, as well as the implementation of stricter requirements that delayed billings and disbursements for government projects.”

“The deceleration can be attributed to the ongoing flood control project scandal, which came to light after President Ferdinand R. Marcos Jr. publicly called out alleged corruption in these projects during his State of the Nation Address on 28 July 2025,” Balisacan said.

The flood control scandal undermined economic activity by stalling infrastructure investment, eroding private sector confidence, and diverting public resources that could have fueled productive economic activity.

While private construction expenditures remained respectable, fixed investments contracted during the period, resulting in a 3.3-percent decline in Gross Capital Formation (GCF) from the same period last year.

The GCF measures the spending of businesses, governments, and households on creating or acquiring long-term productive assets, an indicator of productive capital.

President Marcos had directed the reallocation of budget funds from flood control to social amelioration programs while ordering audits of ongoing projects which, economists said, led to delayed disbursements of funds and stalled public investments that typically drive growth.

Since public infrastructure projects are major contributors to the GCF, these delays can drag down overall investment and GDP growth.

Gross National Income (GNI) also recorded a sharp decline, dropping 2.4 percentage points from the previous quarter to a 5.6-percent year-on-year growth rate.

Net primary income from the rest of the world fell to 16.9-percent year-on-year, significantly lower than the 30.3-percent posted in the second quarter.

Main contributors to third-quarter growth were wholesale and retail trade, including repair of motor vehicles and motorcycles (5 percent); financial and insurance activities (5.5 percent), and professional and business services (6.2 percent).

On the demand side, household consumption expenditure rose by 4.1 percent while government final consumption expenditure (GFCE) increased by 5.8 percent. Exports of goods and services expanded by 7 percent, and imports of goods and services by 2.6 percent. Meanwhile, gross capital formation contracted by 2.8 percent.

GFCE refers to the value of goods and services purchased or produced by the government to meet the collective and individual needs of the public.

In essence, it measures how much the government spends on providing services to society, excluding investments in infrastructure or capital goods.

2025 goals challenging

Achieving even the lower end of the government’s target of a 5.5-percent growth, already revised downward from 6-8 percent, would now be “challenging”, Balisacan conceded in a briefing.

Public concern over the so-called ghost flood control projects believed to have cost taxpayers billions likely contributed to a slowdown in household consumption to 4.1 percent from 5.2 percent a year ago, Balisacan said.

“Consumer confidence may have been affected by the ongoing probes and discussions on government infrastructure spending,” he said, adding that the cancellation of “school, work, and travel activities due to typhoons” also likely dampened household spending.

The flood project scandal’s clearest impact, however, was in the construction sector, where spending nosedived.

But Jesus Felipe, economics professor at De La Salle University, said the government’s explanation for the third-quarter performance was unconvincing.

“The truth is that typhoons (which happen every year) and corruption cannot fully explain the four-percent growth,” he said, adding that targets of six percent or higher were simply unrealistic.

On Wednesday, Governor Pamela Baricuatro of Cebu province—where more than 70 percent of the typhoon deaths occurred—explicitly linked the flood control scandal to the “unusual” flooding in a cluster of subdivisions.

“You begin to ask why we’re having terrible flash floods here when you had P26.6 billion for flood control projects (in the national budget),” Baricuatro said in a television interview.