(Jan 29): The Philippine economy slowed more than expected to the weakest pace in nearly 15 years outside of the pandemic, hurt by a public works corruption scandal that is weighing on investments, households and government spending.
Gross domestic product expanded 3.0% in the October to December period from a year earlier, the statistics agency said Thursday. That’s worse than all economist estimates in a Bloomberg News survey, and less than the revised 3.9% pace of the previous quarter. Full-year growth slowed to 4.4%, below the official 5.5% to 6.5% target.
“The flood control corruption scandal weighed on business and consumer confidence,” Economic Planning Secretary Arsenio Balisacan said at a briefing, estimating that 2025 growth would have come in at 5.5% without the scandal. But the government’s probe of the irregularities in public spending “had to be undertaken” to come up with reforms, he added.
The peso held losses, with the currency down 0.3% to 58.90 against the dollar, while the nation’s main stock index extended its decline to more than 1%.
Investments fell sharply by 10.9% last quarter, the biggest slump since early 2021. Despite the holidays, household consumption — a main driver of the economy — decelerated further to its slowest pace since the pandemic. Government spending also continued its slowdown, as officials increased scrutiny of infrastructure allocations amid the corruption probe.
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“The sharp 10.9% decline in capital formation underscores the need for stronger governance — particularly in regulatory consistency, infrastructure execution, and investment facilitation — to restore business confidence,” said Ruben Carlo Asuncion, Union Bank of the Philippines chief economist.
Revelations last July that public funds meant for flood-control projects had been misused have rocked the Philippines, leading to a sharp slowdown in what had been one of Asia’s fastest-growing economies. While protests have died down, the fallout continues, with the government this month cutting its 2026 growth target by one percentage point to 5%-6%, a goal that officials affirmed today.
“We’ll need a sharp recovery in public spending to reignite momentum,” said Nicholas Mapa, an economist at Metropolitan Bank & Trust Co in Manila, though he noted that future growth prints could get a boost from base effects, still-low inflation and looser monetary policy.
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The poor performance is underscored by the relative resilience of other Asian economies, which have also had to deal with US tariffs and other economic headwinds. Malaysia and Singapore both reported a 5.7% expansion in the fourth quarter, while Vietnam’s economy grew at a blistering 8.46% pace in the period. Even China outpaced the Philippines.
The Philippines also faces political risks in 2026. President Ferdinand Marcos Jr, who revealed irregularities in public spending and insisted he will root out graft, is now facing impeachment complaints in connection with the scandals. He denies wrongdoing and his allies in Congress are expected to dismiss the efforts.
Cabinet officials have signalled optimism that the Philippine economy will likely rebound in the second half as the government steps up spending, with benign inflation also stimulating private consumption. The central bank has also been lowering its key rate to support the economy.
The surprisingly weak GDP print “will probably persuade Bangko Sentral ng Pilipinas to loosen policy another notch”, said said Bloomberg Economics’ Tamara Mast Henderson.
BSP Governor Eli Remolona has said weaker-than-expected data will help the central bank decide whether to further cut the key rate. Officials are set to hold their next interest rate-setting meeting in February, having cut the rate by a total of two percentage points in an easing cycle that began in August 2024.
The local currency has recently recouped previous losses, bouncing back from a record low against the US dollar as the greenback has weakened. Stocks have also recovered some ground since retreating at the height of the scandal, but foreign investors remain wary of domestic risks.
“What we are now trying to do is to improve the quality of spending,” Balisacan said. “That would particularly include infrastructure.”
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