Targets and typhoons

Gross Domestic Product (GDP) growth for the third quarter of 2025 came in much slower than previously expected. Already bearish consensus expectations were close to 5 percent and the reported estimate was much lower at 4.0 percent. This is the slowest growth rate over the past 10 quarters. More importantly, it reflects that the sudden deceleration came mostly from public construction spending, which actually contracted by 26 percent year-on-year in the third quarter. 

This is clear evidence that the discovery of widespread corruption in flood control projects involving many sitting high ranking public officials and private firms over the past 10 years has led to a massive reversal in infrastructure spending. This pullback in government spending puts at risk the medium-term fiscal framework growth targets of the administration of GDP growth between 6.0-7.0 percent for 2026-2028. 

While the disappointment is a concern, we must remember that this was a policy decision. 

Government spending is like a water tap, you can turn it off, which is what is happening, and you can also turn it on again. When government infrastructure spending will recover, however, is the bigger question. Given the nature of the problem, it will unlikely be sooner than later. 

Turning on the spigot for public infrastructure too early will not help given that the “business” enterprises that illegally profit from government projects are still intact. This would simply feed and allow them to grow even further and entrench themselves deeper in the system. Eventually, the damage on an economic, political, and social scale will be irrecoverable. 

Some groundwork to ensure social justice, new controls, and additional transparency are needed to assure the stakeholders of the Philippines that these shadow businesses are no longer allowed to exist. That will take some time and thus we must expect government infrastructure spending to be limited in the succeeding quarters. 

Social justice is something within our control. However, economic growth is also threatened by factors beyond our control, such as the intense typhoons we have experienced, are experiencing, and will experience in 2025. In 2024, we had six typhoons over three consecutive weeks in late October to mid-November. Three of these typhoons were classified as super typhoons. 

Even with the exit of El Niño, we still had agriculture registering contractions in the third and four quarters of 2024 because of these storms. Although agriculture grew by 2.6 percent in the third quarter of 2025, in absolute terms we are flat from the level in the fourth quarter of 2023, which can be considered a “normal” year. In other words, the storms during the third quarter erased any productivity gains. 

With the devastation of typhoon “Tino” this week in the Visayas region and the imminent arrival of super typhoon “Uwan,” we should expect a similar risk to agricultural productivity for the fourth quarter. 

If you have noticed, these key drags on economic growth and productivity are related in terms of climate change. Typhoons are becoming stronger and more frequent and one of their major effects is flooding, which unfortunately its risk mitigation is a major source of corruption. 

While climate change is incorporated in our development strategies, most of it is medium to long-term integration. The effects of climate change are already happening and will continue to happen. Protecting our economic targets is now very difficult. But there is no better time than tomorrow and the succeeding days and weeks to move towards preparation, prevention  and protection against these climate change-related risks.