By Justine Irish D. Tabile, Senior Reporter

Philippine economic growth decelerated to a post-pandemic low of 2.3% in the second quarter, as a surge in oil prices fueled inflation, suppressed household consumption, and a sharp contraction in public construction dragged down investment.

Despite the weaker-than-expected outturn, Department of Economy, Planning, and Development Secretary Arsenio M. Balisacan dismissed the risk of stagflation, stating that a recovery could commence in the second half of the year as infrastructure spending accelerates.

Data from the Philippine Statistics Authority (PSA) showed gross domestic product (GDP) expanding by 2.3% in the April-to-June period, a marked slowdown from the 5.4% growth recorded in the same quarter a year earlier and the 2.8% expansion in the first quarter.

The second-quarter figure fell short of the median GDP growth estimate of 2.8% from a BusinessWorld survey of 21 economists and analysts conducted last week.

This represented the slowest GDP growth since the 3.8% contraction in the first quarter of 2021, during the height of the coronavirus pandemic. Excluding the pandemic years, it was the weakest reading in more than 16 years, or since the 1.8% expansion in the fourth quarter of 2009.

On a seasonally adjusted quarter-on-quarter basis, GDP grew by 0.6%, easing further from the 0.9% expansion in the preceding quarter.

The second-quarter result brought first-half GDP growth to 2.6%, well below the government's full-year target range of 3.5%–4.5%.

The Philippines also trailed other major Southeast Asian economies that have released second-quarter data, including Vietnam at 8.4%, Malaysia at 5.8%, and Indonesia at 5.3%.

"What we are experiencing right now is, I believe, transitory, temporary. We are making efforts to get back to the high growth trajectory. The situation we are in brings us lessons, particularly in the management of our energy sector," Mr. Balisacan said during a briefing on Friday.

"The pass-through effects of the high oil prices to the local economy was quite quick," he added.

The Philippines ranks among the economies most affected by the Middle East conflict owing to its heavy reliance on imported oil. The country sources nearly all of its crude oil requirements from overseas, leaving businesses and consumers directly exposed to movements in global energy prices. Disruptions to global oil supply have driven inflation higher, averaging 4.8% in the first six months of the year.

Demand-Side Slowdown

On the demand side, household final consumption expenditure — a key engine of the economy — grew by 2.8% in the second quarter, decelerating from 5.2% in the same quarter last year and 3% in the previous quarter.

This marked the weakest pace since the 4.8% contraction in the first quarter of 2021. Excluding the pandemic period, it was the slowest consumption growth since the 2.6% recorded in the third quarter of 2010.

"Household consumption growth also moderated amid higher inflation, job losses, and lower remittance receipts arising from the Middle East conflict," Mr. Balisacan said.

Remittances from overseas Filipino workers, which typically equate to roughly 9–10% of GDP and are a foundational source of household income, face headwinds as the Middle East conflict disrupts labor markets in the region — one of the largest destinations for Filipino workers abroad.

Gross capital formation contracted by 9.2%, worsening from the 3.1% decline in the first quarter and reversing the 0.91% expansion posted in the same quarter a year ago.

Gross fixed capital formation fell by 13.7%, a reversal of the 3.1% growth recorded last year and a steeper decline than the 2.5% contraction in the first quarter. This was the sharpest contraction since the first quarter of 2021, when it dropped by 18.2%. Excluding the pandemic period, it was the worst performance since the 16.2% decline in the second quarter of 2011.

Government final consumption expenditure, by contrast, grew by 8.3% in the April-to-June period — slower than the 8.7% expansion a year earlier but considerably faster than the 4.8% growth in the first quarter.

"However, government final consumption spending accelerated as social assistance was expanded to cushion vulnerable households and sectors," Mr. Balisacan said.

Exports of goods and services rose by 12.2%, outpacing the 5.5% growth in imports, driven by stronger demand for Philippine semiconductor and electronics products used in artificial intelligence-related technologies. The Philippines is a major player in the global semiconductor value chain, with electronics consistently accounting for the bulk of merchandise exports.

Construction Plunge Weighs on Industry

On the production side, industry contracted by 2.4%, as the steep decline in construction outweighed stronger manufacturing output. This reversed the 2.1% growth recorded a year earlier and represented a deeper contraction than the 0.1% decline in the first quarter.

"One component of the industry is construction, public construction and private construction. Public construction contracted by 32% — that's quite a lot — whereas private construction still managed to grow a bit, by 2.5%, so that accounted for the decrease," said Mr. Balisacan.

"Manufacturing, fortunately, grew, but it's not enough to offset the sharp reduction in the growth of construction," he added.

Public construction plunged by 32.4% as infrastructure agencies adopted a cautious stance following the flood-control corruption scandal last year. Mr. Balisacan said the caution stemmed partly from measures being implemented to prevent similar irregularities and from the filing of cases against those allegedly involved in anomalous projects.

He noted that GDP growth could have been at least one percentage point higher in the second quarter had public construction recorded zero growth rather than contracting sharply.

"Although public construction is a small part of the economy, the amount of that contraction, which is 32%, brought a significant impact on the economy," he said.

Services, which accounted for 64.6% of total GDP, grew by 4.5% in the second quarter — slower than the 6.9% recorded a year ago and the 4.6% in the first quarter.

Agriculture, forestry, and fishing, which contributed 7.5% to GDP, grew by 2.7% in the second quarter. This was slower than the 7% growth a year earlier but a turnaround from the 0.3% contraction in the first quarter.

The main contributors to GDP growth were wholesale and retail trade; repair of motor vehicles and motorcycles, which expanded by 4.6%; education at 12.7%; and manufacturing at 2.6%.

Gross national income posted annual growth of 2.2% in the second quarter, decelerating from 8.1% a year ago and 2.9% in the first quarter. Net primary income from the rest of the world grew by 1% in the second quarter, significantly slower than the 31.7% recorded in the same quarter of 2025 and the 3.5% in the previous quarter.

Balisacan Rules Out Stagflation

Despite the combination of sluggish economic growth and elevated inflation, Mr. Balisacan ruled out the risk of the economy entering stagflation.

"I don't think so," he said when asked about the risk. "We are seeing now some positive developments moving us out of the situation of growth."

"I think the key factor here is our ability to move public investments because we see and we notice that private investment is also very sensitive to public investments," he added.

Mr. Balisacan said accelerating public investment could encourage the private sector to increase spending and help rebuild business confidence.

The government expects inflation to continue easing after accelerating to a multi-year high earlier this year, a trend that could gradually restore household purchasing power and consumer confidence.

"And as we deploy our domestic responses, particularly protecting the purchasing power of our population, we hope that we are able to sustain the momentum in the positive sentiments that we are developing in June and after," Mr. Balisacan said.

Inflation has been moderating since May, declining from a peak of 7.2% in April to 6.8% in May, 6.4% in June, and 6.2% in July.

Mr. Balisacan said slower inflation would also provide a more favorable environment for the Bangko Sentral ng Pilipinas (BSP) to hold off on rate hikes, though monetary policy decisions would depend on domestic and global price and interest-rate conditions.

"Now that we are seeing a gradual slowdown of price increases, that should be a positive thing for the BSP," he said.

"If they also see that inflation is not deanchored from the target, [they] should have no reason to tighten further," he added.

At its June meeting, the BSP tightened for a second consecutive meeting, raising the key policy rate by 25 basis points (bps) to 4.75%. The Monetary Board is scheduled to hold three more policy reviews this year on Aug. 27, Oct. 22, and Dec. 17.

Full-Year Target 'Within Reach'

The economy must grow by at least 4.4% in the second half to reach the lower end of the government's 3.5%–4.5% full-year target, Mr. Balisacan said.

"This will be demanding, but the target remains within reach if we act with urgency, discipline, and close coordination across government," he said.

The government will require implementing agencies to carry out catch-up plans with specific milestones and accountability measures to prevent further delays and underutilization of funds.

"What was not spent in the previous quarters is still going to be spent," Mr. Balisacan said, noting that these funds would be deployed alongside the programmed budget for the second half.

"Implementing agencies will carry out catch-up plans with clear milestones and accountability measures, including seeking the necessary exemptions for projects covered by restrictions related to the Bangsamoro parliamentary election, to prevent delays and the underutilization of funds," he added.

Beyond infrastructure spending, Mr. Balisacan said growth would be supported by easing inflation, improving business confidence, and stronger exports. He noted that exports had outperformed imports in the past two quarters, improving the country's trade balance and providing an additional source of growth beyond household consumption.

The government plans to capitalize on demand for AI-related products by supporting higher-value manufacturing and services and expanding the Philippines' participation in global technology supply chains.

However, uncertainty surrounding the Middle East conflict, elevated oil prices, tight financial conditions, El Niño, and further typhoons could weigh on the recovery, Mr. Balisacan cautioned.

Source: BusinessWorld