On Tuesday, 13 January, Hongkong and Shanghai Banking Corporation Ltd. (HSBC) joined the growing list of multinational institutions downgrading the Philippines’ growth outlook amid rising corruption allegations confronting the Marcos Jr. administration.

HSBC ASEAN economist Aris Dacanay said heightened scrutiny over public fund disbursements, coupled with a sharp decline in infrastructure spending, prompted the bank to cut its 2025 gross domestic product (GDP) growth forecast to 4.7 percent.

"I think a lot of market players are already expecting the worst as people expect the process of institutional reform, the process of increasing due diligence in public infrastructure spending will eventually, though good, will eventually drag growth. I think that's highly expected," Dacanay said.

Last week, Bangko Sentral ng Pilipinas (BSP) Governor Eli M. Remolona Jr. said GDP growth for 2025 would settle at 4.6 percent. Both forecasts fall well below the government’s 5.5 to 6.5 percent target range for the year.

Economic growth averaged 5.0 percent in the first three quarters of 2025, but Dacanay warned this could slip below 4.0 percent in the fourth quarter if infrastructure spending continued to decline in November and December, following a 40-percent contraction in October, as earlier reported by the Department of Budget and Management (DBM). Remolona has likewise said fourth-quarter growth would be “less than [4 percent].”

"That causes a lot of concerns for the Filipinos, whether this drag in fiscal spending will translate to slower domestic private demand. I think that will be a challenge for 2026," Dacanay said.

DBM Acting Secretary Rolando Toledo said this week that the government is earmarking 4.3 percent of GDP, or roughly P1.3 trillion, for infrastructure spending in 2026, which Dacanay said could help offset last year’s slowdown. He noted that employment gains from renewed infrastructure investment could support the government’s expected rebound in the second half of the year.

"There are around 4.5 million jobs in construction. A lot of the growth in construction was driven by the Build, Build, Build program so the reversal of any aggressive spending in public infrastructure will provide uncertainty to the 4.5 million jobs, which represent 10% of the labor force," he said.

“I think uncertainty alone can incentivize households to save even beyond what they saved compared to the pre-pandemic levels. From a loaner's end, confidence will likely return by the second half," Dacanay added.

Dacanay said consumption is expected to pick up in 2026, though at a slower pace due to domestic and global political uncertainties.

"Because of consumption increasing, we do expect the current account to improve drastically with less import demand of capital because of less infrastructure spending, less imports of consumer goods, and also for the onset of a weaker peso, I think households will buy more local goods, but also at the same time, buy less goods overall," he said.

HSBC also expects the BSP to cut its target reverse repurchase rate (RRP) by another 25 basis points at the Monetary Board’s meeting on 19 February 2026.

"I think 4.25% is the floor, that is our baseline scenario, but if the Fed were to cut deeper, current market pricing is also forecasting some cuts with the Fed. If that is the case, I think there is room for the BSP to cut," Dacanay said.

The DBM reported that from January to October 2025, spending on infrastructure and other capital outlays fell 13.1 percent to P943 billion, down from P1.09 trillion a year earlier.

Toledo earlier assured the public that the 2026 national budget contains no ghost projects, as the government seeks to accelerate infrastructure spending to revive growth.

“There’s no reason for us to delay and no ghost projects. We can achieve the projected target as far as our infrastructure is concerned,” he said.