‘Softer Q3 growth may put 2026 target at risk’

MANILA, Philippines — The Philippine economy likely expanded at a softer pace in the third quarter, posing downside risks to the full-year growth forecast of 3.3 percent for 2026, according to research and analysis firm BMI.

“Early indicators suggest the Philippine economy entered Q3 with less momentum than anticipated,” the Fitch Solutions unit said in a report, adding this raises the downside risks to its growth forecast.

BMI’s full-year 2026 growth forecast is below the government’s 3.5 to 4.5 percent growth target.

“Following the 2.6 percent expansion in H1, real GDP (gross domestic product) would need to grow by at least 3.9 percent in H2 to reach our full-year projection,” BMI said.

While BMI initially expected government infrastructure spending and a low base to support economic growth recovery in the third quarter, it said that the intensified corruption investigation likely kept public spending subdued.

“We estimate that weaker public capex in Q3 could lower our 2026 growth forecast by around 0.2 percentage points to 3.1 percent. We are likely to make this adjustment if July to August capital outlay data confirm our assessment,” BMI said.

It also said that high inflation and rising unemployment may have continued to weigh on consumption.

While inflation eased to 6.1 percent in August from 6.2 percent in July, BMI expects it to re-accelerate toward year-end under its base case scenario of a United States-Iran deal by end-September.

From January to August, inflation averaged 5.2 percent, above the government’s two to four percent target.

“Overall, we forecast inflation averaging 5.7 percent in 2026, below the BSP’s latest projection of 6.1 percent, which assumes more severe El Niño-related price pressures,” BMI said, referring to the Bangko Sentral ng Pilipinas.

The unemployment rate rose to six percent in July, the highest in over four years.

BMI also cited weather-related disruptions such as tropical storms and flooding as other factors that likely dampened growth in the third quarter.

While manufacturing – which expanded at its fastest pace in over nine years in August – and continued exports growth are seen as bright spots, BMI said these are unlikely to offset weak investment and consumption.

On monetary policy, BMI is keeping its forecast that the BSP will stand pat for the rest of the year as weak economic growth raises the cost of further tightening.

“We will reassess our view after the September inflation release, with a further 25 to 50-basis-point hike to 5.25 to 5.50 percent by end-2026 the most likely alternative scenario,” BMI said.

At its meeting last month, the BSP raised the key policy rate by 25 basis points to five percent.