Phl growth too reliant on consumption — BPI

The Philippines needs alternative growth sectors to further boost the country’s economic prospects, according to Bank of the Philippine Islands (BPI) Senior Vice President and Chief Economist Emilio S. Neri Jr.

In a report analyzing the recent gross domestic product (GDP) slump in the fourth quarter of 2025, Neri said the country faces longer-term structural challenges beyond the stunted growth resulting from the flood control scandal.

“Public discussion on the data has largely focused on the sharp decline in government spending and its impact on growth,” he said.

“However, the report also highlights another structural issue that deserves greater attention. The economic slowdown reflects not only fiscal weakness but also the country’s limited and highly concentrated sources of growth,” Neri added.

The Philippine Statistics Authority (PSA) released the full-year and fourth-quarter GDP growth figures last week, with full-year GDP growth landing at 4.4 percent—well below the government’s annual target range of 5.5 to 6.5 percent. This marked the third straight year the country has missed its growth targets under President Ferdinand R. Marcos Jr.

The fourth quarter likewise saw a steep drop to 3.0 percent, about 0.9 percentage point lower than the previous quarter’s already weak figure, largely due to the contraction in public infrastructure investment linked to the “floodgate” scandal.

“Government construction spending fell by 42 percent in the fourth quarter amid investigations into alleged irregularities in flood control projects, shaving off 2.2 percentage points from headline GDP growth,” Neri said. He noted, however, that the slowdown in 2025 also exposed deeper structural issues in the Philippine economic framework.

Consumption has long driven the Philippine economy, accounting for approximately 73 percent of GDP. The country has also relied heavily on the business process outsourcing (BPO) sector as a key growth engine. Neri noted that external shocks tend to dampen these drivers, likening the current slump to the downturn during the COVID-19 pandemic.

“For many years, the Philippine economy has been heavily reliant on consumer spending, supported by remittances and the BPO sector. When the pandemic hit, the economy contracted sharply as lockdowns severely disrupted consumption,” Neri said.

“Other sectors, such as manufacturing, were not strong enough to offset the shock, unlike in countries such as Vietnam, where a broader set of growth drivers provided greater resilience,” he added.

Neri said the fourth-quarter figure was largely supported by consumption. However, he noted that if the country had stronger alternative growth drivers, such as agriculture or manufacturing, the slowdown in infrastructure investment could have been offset further.

“Even with the sharp decline in government construction spending, growth might have been more acceptable if the production sectors had been in a stronger position to offset the drag, particularly agriculture and manufacturing,” he said.

Neri said the downturn triggered by the corruption scandal should serve as a point of reflection on the country’s sources of economic expansion. He stressed that the Philippines should not rely heavily on consumption and government spending alone, noting that diversifying growth drivers would better equip the country to withstand external shocks, including political crises.

“The country cannot remain overly reliant on a narrow set of growth drivers such as consumption and government spending,” he said.

“Even if public expenditure normalizes in 2026, the underlying vulnerability will persist unless the country broadens its sources of growth. A more diversified economy would be better equipped to absorb future crises and shocks,” the economist added.

Neri stressed the need to diversify into alternative growth areas, such as agriculture and manufacturing. He likewise acknowledged the importance of construction and quality infrastructure in strengthening the country’s productive capacity.

“The economy remains strong on the demand side, but it is still unable to produce a significant portion of what it consumes,” he noted.

Despite the downturn, Neri foresees a potential rebound for the Philippine economy in the second half of 2026. He said the government’s response to the slowdown—including probes and reforms addressing corruption—is critical to restoring investor confidence.

“It’s not simply a matter of government increasing its spending. The quality of spending will be critical in restoring confidence and ensuring that public investment translates into productive capacity.”