Growth seen slowing to 3.8%

The country’s gross domestic product (GDP) growth rate will likely contract to 3.8 percent in the fourth quarter of 2025 — a further slowdown from the third quarter’s 4.0 percent and a steep drop from the 5.3 percent recorded in 2024, according to Bangko Sentral ng Pilipinas (BSP) Governor Eli M. Remolona Jr.

In an interview at BSP headquarters in Manila, Remolona said the latest central bank data pointed to weaker fourth-quarter GDP amid the lingering effects of the flood control scandal.

“I believe our estimate is around 3.8 [percent],” he told reporters in Filipino.

What slower GDP growth means

Simply put, the economy is still growing, but at a slower pace. Imagine a car that used to cruise at 53 kilometers per hour (reflecting the 5.3-percent growth in 2024) now slowing to around 38 km/h (projected 3.8-percent growth in late 2025).

Slower growth usually translates to fewer new jobs, weaker business activity, and slower income gains for households and companies. When growth decelerates quarter after quarter — from 5.3 percent to 4.0 percent to 3.8 percent — it signals that households, businesses, and investors are more cautious, which can affect hiring, expansion plans, and government revenues.

The BSP is essentially signaling that 2025 will feel “tight” — not a recession but a year where money, opportunities, and economic upgrades will move more slowly than in recent years.

‘Weaker than expected’

The announcement follows the central bank’s 25-basis point cut to the Target Reverse Repurchase Rate (RRP) a day earlier, a key tool that helps manage market liquidity by letting the BSP buy securities from banks with a commitment to sell them back later.

Remolona said during last Thursday’s press briefing that fourth-quarter growth was “weaker than expected,” a view he reaffirmed on Friday with the release of a clearer figure.

“As you know, growth slowed more than expected, to four percent in the third quarter. Sentiment remains weak, due to the corruption issue, as we can gauge from various sentiment indices. However, we expect a recovery in 2026 and 2027, partly due to previous rate cuts,” he said.

The 4.0-percent GDP — the slowest since 2011, excluding the pandemic years — has been widely attributed to a sharp pullback in public construction tied to the flood control scandal and governance concerns facing the Marcos administration.

Public infrastructure investment contracted by 26.2 percent in the third quarter, shaving about 1.3-percentage points from the GDP.

To help counter weak demand, the Monetary Board cut the RRP eight times since August 2024, totaling 200 basis points of easing. The policy rate now stands at 4.5 percent.

Remolona said Thursday the BSP may be nearing the end of its easing cycle, noting that monetary policy typically takes one to two years to fully transmit its effects.

When asked on Friday, however, if another cut was possible at the Monetary Board’s next meeting in February 2026, he did not rule it out, stressing that future moves will depend on the incoming data.

“Thursday’s cut was due to a weakening economy and reduced demand, so our goal is to supplement demand,” he said in Filipino.

“However, if we [decide to cut by] 50 [basis points] off-cycle, it will worsen the loss of confidence,” he added, warning that such a move could be interpreted as “desperate” by investors and further dampen market sentiment.

Remolona said the BSP will closely study the data in the coming months and that any follow-through easing would occur only during the Monetary Board’s February meeting.