The Philippine economy likely grew at a slower year-on-year pace in the third quarter, weighed down by elevated inflation, weak household consumption and sluggish investment, according to economists.

A BusinessWorld poll of 16 economists and analysts produced a median estimate of 2.7% gross domestic product (GDP) growth for the July-to-September period. If realized, the result would mark a slowdown from the 3.9% expansion recorded in the third quarter of 2025, although it would represent a modest pickup from the 2.3% growth posted in the second quarter of this year.

At that pace, average GDP growth for the first nine months would reach 2.6%, below the government's full-year target of 3.5% to 4.5%.

The Philippine Statistics Authority (PSA) is scheduled to release the third-quarter GDP data on Monday, Nov. 9.

"Growth should be supported by public spending, seasonal activity and a gradual recovery in consumption. However, elevated inflation and borrowing costs are likely to restrain household spending, while weak investment remains a key drag," Maybank economist Azril Rosli said in an e-mail.

Inflation accelerated to 7.2% in September from 6.1% in August amid persistently high fuel and food prices, bringing the average rate to 5.4% for the first nine months and 6.5% for the third quarter.

Security Bank research head and chief economist Angelo B. Taningco said a potential downside surprise to third-quarter GDP could stem from modest growth in household consumption amid persistent inflationary pressures.

"Capital formation (is) again anemic on lack of public construction activity given dampened sentiment by private businesses and on public works," he said, adding that government spending may have moderated due to bad weather.

Mr. Taningco noted that the trade deficit also widened "despite better export performance as import costs turned more hefty given elevated oil prices and peso depreciation."

China Banking Corp. (Chinabank) chief economist Domini S. Velasquez said domestic demand likely remained weak, although favorable base effects may have supported a modest improvement in growth in the third quarter from the second.

"However, the recovery is expected to remain modest amid weak domestic demand," she said in an e-mail.

Ms. Velasquez said household consumption, which accounts for around 70% of GDP, is expected to slow from its 2.8% growth in the second quarter "amid elevated inflation, weak consumer confidence, soft labor market conditions, and moderating remittance growth."

University of Asia and the Pacific economist Marco Antonio C. Agonia said the Middle East conflict continued to dampen economic activity through elevated prices and heightened uncertainty.

"Macro headwinds from the Middle East war in the form of elevated price pressures and significant uncertainty continue to weigh on growth prospects, keeping household spending and capital formation notably subdued," he said in an e-mail.

Mr. Agonia added that a slower contraction in government spending, particularly infrastructure outlays, may have provided a marginal improvement from the second quarter.

Weak Public Spending

Economists said weak public infrastructure spending and subdued private investment likely remained major drags on third-quarter growth.

Oxford Economics assistant economist Jun Hao Ng said tighter scrutiny and implementation delays continued to weigh on public infrastructure spending.

"Further implementation delays, particularly if spending is pushed into 2027, could weaken growth this year," Mr. Ng said in an e-mail.

Infrastructure and other capital outlays in the first eight months totaled P522 billion, down 34.6% from P798.4 billion in the same period a year ago. That amount was equivalent to just 56.04% of the P931.54 billion programmed for infrastructure and other capital outlays for the full year.

"Conversely, the substantial amount of unspent budget and the government's efforts to accelerate project implementation could generate a stronger-than-expected rebound in public investment in Q4," Mr. Ng said, noting that full disbursement remains unlikely, with part of the recovery in public investment likely to extend into 2027.

Chinabank's Ms. Velasquez said third-quarter public infrastructure spending may post another contraction, following the 26% decline recorded last year.

"Private construction is likely to remain flat or contract amid declining building permits and elevated borrowing costs. We expect a meaningful return to infrastructure-led fiscal stimulus only next year," she said.

De La Salle University economist Marites M. Tiongco said a modest improvement in third-quarter GDP from the second quarter would not necessarily signal a sustainable economic recovery.

"Even if Q3 GDP improves, an expansion driven primarily by consumption and services, without a recovery in fixed investment, construction, and industrial productivity, would represent cyclical stabilization rather than structural transformation," she said.

Silver Linings

S&P Global Market Intelligence principal economist Harumi Taguchi said private consumption likely remained the main growth driver during the quarter, although a moderate one.

"Budget execution is expected to accelerate infrastructure spending, easing the contraction in fixed investment, even though fixed investment is expected to remain a major drag on growth during the quarter," she said in an e-mail.

Union Bank of the Philippines chief economist Ruben Carlo O. Asuncion said increased government spending, particularly on subsidies and social protection, provided support for economic activity.

"However, these were likely offset by weak household consumption amid elevated inflation and softer labor conditions, subdued investment, cautious business spending and high borrowing costs," he said in an e-mail.

"Weather-related disruptions and peso weakness also weighed on purchasing power and domestic demand," he added.

Economists said exports likely provided some support to third-quarter economic growth amid strong global demand for artificial intelligence (AI)-related products.

"The external sector remains a bright spot, supported by semiconductor exports amid the global AI upcycle," Ms. Velasquez said.

Pantheon Macroeconomics chief emerging Asia economist Miguel Chanco agreed that exports are the main bright spot, saying they are "finally benefiting more consistently from the AI-driven boom in semiconductors."

However, Mr. Chanco noted that exports account for a relatively small share of Philippine GDP compared with regional peers, limiting their contribution to overall economic growth.

"The chip boom is a potential tailwind, but exports are such a small share of GDP (relative to the Philippines' peers) that it'll take much stronger export growth for this to have a meaningful impact on headline GDP growth," he said.

Philippine merchandise exports grew by 17.2% year on year to $73.95 billion in the first nine months, while electronic products exports increased by 31.8% to $44.06 billion, according to PSA data.