Investment takes a hit
The biggest drag in the latest quarter was investment.
Gross capital formation contracted 9.2 percent, its fourth consecutive quarterly decline, while construction activity plunged 14.8 percent.
The weakness has been particularly evident in public construction, where project implementation has slowed amid stricter validation and scrutiny of government infrastructure projects.
The flood-control scandal has added another layer of uncertainty, with Economic Planning Secretary Arsenio Balisacan saying the controversy had affected public spending and investor confidence.
The slowdown in construction and investment has broader effects on the economy, hitting demand for materials, equipment, labor and related services.
Consumers also slow down
Household spending, traditionally a major engine of Philippine growth, expanded only 2.8 percent in the second quarter.
Elevated prices have continued to weigh on consumers’ purchasing power. Inflation accelerated sharply during the second quarter, reaching 7.2 percent in April, 6.8 percent in May and 6.4 percent in June.
Higher food, fuel and other household costs leave consumers with less room for discretionary spending, weakening domestic demand.
Rates, uncertainty weigh on economy
The slowdown comes after years of monetary tightening that began in response to the inflation surge of 2022.
The Bangko Sentral ng Pilipinas raised its policy rate aggressively during 2022 and 2023 to bring inflation under control. Higher borrowing costs can discourage businesses from expanding and households from taking on loans.
By 2026, however, the BSP was balancing support for economic activity against renewed inflation and external risks.
The BSP’s first-quarter report cited weaker domestic demand, subdued investment, public-construction weakness and softer household spending as major factors behind the slowdown. It also pointed to higher fuel costs and heightened global uncertainty.
The growth problem
The latest figures point to more than a temporary slowdown in one sector.
The Philippines is growing at only 2.3 percent while investment is contracting, construction is plunging and household spending is weakening.
At the same time, the government faces the challenge of restoring confidence in public infrastructure spending while dealing with inflation and global economic uncertainty.
