Economic growth slows to 2.1% in Q3

CEBU, Philippines — Philippine economic growth slowed further in the third quarter to its weakest expansion in more than five years, casting doubt on the government’s full-year growth target.

In a press conference, National Statistician Dennis Mapa said the country’s gross domestic product grew by just 2.1 percent in the third quarter, slower than the previous quarter’s GDP growth of 2.4 percent and the four percent expansion in the third quarter last year.

He described the third quarter growth as the “slowest since the first quarter of 2021 during the pandemic period,” when the economy contracted by 3.8 percent.

Excluding the pandemic, he said the third-quarter GDP print was the lowest since the fourth quarter of 2009, when the growth rate was only 1.8 percent.

The latest GDP result brought average growth from the first to the third quarter to 2.5 percent, making the government’s full-year growth target difficult to achieve.

Department of Economy, Planning and Development Secretary Arsenio Balisacan attributed the weak growth performance to high food and energy prices that dampened consumption, lowered agricultural output and subdued investment amid tighter financing conditions.

Household spending growth slowed to 2.4 percent in the third quarter from the previous quarter’s 2.9 percent amid higher fuel prices stemming from the Middle East conflict that also pushed up transport, electricity and production costs.

The agriculture sector also contributed to the weak growth, contracting by 4.8 percent in the third quarter and reversing the previous quarter’s 2.9 percent growth as heavy rains disrupted farm production.

Growth was also dragged down by public construction, which declined for the sixth consecutive quarter, contracting by 15.1 percent compared to the previous quarter’s 33.4 percent.

Balisacan said weather disruptions and delays in project validation and payments affected the delivery of government infrastructure projects.

“Governance concerns and uncertainty also weighed on confidence,” he said.

Gross capital formation or investment contracted by 0.2 percent in the third quarter, but eased from the 8.8 percent decline in the previous quarter.

Despite the slower growth in the third quarter, Balisacan said this does not signal that the economy is entering stagflation. He also said it is best to wait for full-year data and broader economic indicators to get a clearer picture.

Stagflation is a situation marked by low economic growth, high inflation and high unemployment.

To reach the lower end of the government’s growth target for this year, Balisacan said that economic growth in the fourth quarter should reach about 6.3 percent.

“The target of 3.5 to 4.5 percent is very, very challenging at this point given the current environment, but we are hoping, and I would like to believe that the fourth quarter performance will be better,” he said.

If the economy posts at least three percent growth this year, he said it would already be a remarkable achievement given the performance in the first three quarters.

The economy needs to grow by around four to 4.5 percent in the fourth quarter for full-year 2026 growth to reach three percent.

Balisacan said the slower contraction in investment in the third quarter could be a starting point for recovery.

“Faster project implementation and lower fuel prices, if sustained and reflected in domestic costs, could support a fourth-quarter pickup,” he said.

He said that improvements in government processes related to infrastructure delivery are expected to lead to positive growth in public construction in the fourth quarter.

While high inflation and lag effects from previous price increases are expected to continue to put downward pressure on consumption, he said fiscal and monetary tools being deployed to anchor inflation expectations to targets may shift consumer and business sentiment and lead to more robust spending.

“Recovery toward next year’s five to six percent target remains possible but requires stronger investment, easing price pressures and renewed confidence,” he said.

He said risks for next year include energy shocks, El Niño and project implementation delays.

“The DBCC (Development Budget Coordination Committee) will meet early next month to revisit our current growth assumptions and targets,” he said.

Commenting on the latest GDP performance, Chinabank Research said that the economy is expected to remain weak, if not deteriorate further in the fourth quarter.

“Household spending will likely stay subdued amid elevated living costs, while public infrastructure spending remains a drag,” Chinabank Research said.

It also said that private construction may decline as higher interest rates weigh on investment.

Given this outlook, it said that the Bangko Sentral ng Pilipinas will likely be more cautious on further rate hikes, even if inflation rises to around eight percent this month.

For the Makati Business Club (MBC), the latest economic performance should be seen as a warning, as challenges such as persistent inflation, declining purchasing power, weak investment and rising business costs are expected to be compounded by the Super El Niño, which threatens agricultural production, water and power supplies, as well as food security.

“While attracting investments, restoring business confidence and accelerating infrastructure development remain critical, we must address the underlying constraints to our competitiveness, including workforce readiness, energy affordability, infrastructure gaps, regulatory predictability and institutional stability,” MBC executive director Julia Abad said.

She also underscored the importance of a transparent, accountable budget process in driving economic growth by prioritizing investments that spur growth and ensuring public funds go where they are genuinely needed.

“Good governance and effective public institutions are essential to ensuring that resources are used efficiently and deliver tangible economic and social benefits,” she said.