The Philippine economy decelerated sharply in the second quarter of 2026, as the ongoing Middle East conflict fueled inflation and dampened both household spending and investment activity. The slowdown marks a striking departure for an economy that has ranked among Southeast Asia's fastest-growing in recent years.

Gross domestic product (GDP) expanded by 2.3% year-on-year in the April-to-June period, a significant slowdown from the 5.4% growth recorded in the same quarter a year earlier and the 2.8% pace posted in the first quarter of 2026. The figure fell short of the median estimate of 2.8% from a BusinessWorld survey of 21 economists and analysts conducted the prior week. Excluding the pandemic period, it marked the slowest economic expansion since the fourth quarter of 2009.

During a press briefing on Friday, Department of Economy, Planning, and Development (DEPDev) Secretary Arsenio M. Balisacan attributed the tepid performance to broadly subdued domestic demand.

"Domestic demand remained subdued, mainly because total investment continued to contract as public construction declined. Household consumption growth also moderated amid higher inflation, job losses, and lower remittance receipts arising from the Middle East conflict," Mr. Balisacan said.

The impact on remittances is particularly significant for the Philippines, where cash transfers from overseas workers are equivalent to roughly 9–10% of GDP and are a critical source of household income. The Middle East hosts a substantial share of the country's overseas workforce.

He noted, however, that fiscal intervention provided some support: "Government final consumption spending accelerated as social assistance was expanded to cushion vulnerable households and sectors."

On the demand side, household final consumption expenditure rose by 2.8% in the second quarter, while government final consumption expenditure surged by 8.3%. Exports of goods and services grew by 12.2%, and imports of goods and services increased by 5.5%. Gross capital formation, meanwhile, contracted by 9.2%.

According to Philippine Statistics Authority (PSA) data, the principal drivers of year-on-year growth in the second quarter were wholesale and retail trade, along with the repair of motor vehicles and motorcycles, which grew by 4.6%; education, which rose by 12.7%; and manufacturing, which posted a 2.6% increase.

Among the major economic sectors, agriculture, forestry, and fishing expanded by 2.7%, and the services sector grew by 4.5%. The industrial sector, however, contracted by 2.4% year-on-year.

Mr. Balisacan highlighted several resilient areas of the economy. "There were also clear areas of strength. Agricultural output recovered with the help of favorable weather conditions. Manufacturing growth improved, while exports of goods and services gained momentum. Stronger semiconductor exports, supported by global demand for AI-related products, helped net exports rebound during this semester or the quarter," he said. The Philippines is a major producer of semiconductors and electronics components, which consistently rank among the country's top export categories.

For the first half of 2026, GDP growth averaged 2.6%. Mr. Balisacan stated that the Philippine economy would need to expand by at least 4.4% in the second half to meet the government's revised full-year growth target of 3.5–4.5% for 2026.

— Reported by Cathy Rose A. Garcia, BusinessWorld