By Justine Irish D. Tabile, Senior Reporter
THE Philippine economy grew by a weaker-than-expected 2.8% in the first quarter, the slowest pace since the pandemic, as the fallout from a corruption scandal and soaring oil prices triggered by the Middle East conflict dampened economic activity.
Data from the Philippine Statistics Authority showed that gross domestic product (GDP) expanded by 2.8% in the January-to-March period, significantly slower than the 5.4% expansion in the same quarter last year.
This was also well-below the 3.4% median forecast of 21 economists in a BusinessWorld poll last week, and slower than the revised 3% GDP growth in the fourth quarter of 2025.
On a seasonally adjusted quarterly basis, GDP expanded by 0.93%, from 0.6% in the previous quarter.
The Department of Economy, Planning, and Development (DEPDev) said the impact of the Middle East war, compounded by lingering effects of last year’s corruption scandal and delays in the release of the 2026 national budget, weighed on economic growth in the first three months.
“We recognize that this outcome reflects the combined impact of significant domestic and global challenges,” said DEPDev Secretary Arsenio M. Balisacan.
“The conflict in the Middle East, which escalated toward the end of February, triggered higher global oil prices and renewed supply chain pressures, creating additional risks for oil-importing economies such as the Philippines,” he added.
The first-quarter print was the weakest since the 3.8% contraction in the first quarter in 2021. Excluding the pandemic, it was the slowest pace since the 1.8% growth seen in the fourth quarter of 2009.
“Among our neighboring economies in Asia that have released their first-quarter GDP figures, our growth performance trails Vietnam, Indonesia, and China, among others in the region,” Mr. Balisacan said.
The Development Budget Coordination Committee would meet by Monday next week to review its macroeconomic assumptions, he said.
“We don’t expect to achieve the kind of growth that we expected to happen a year ago, given recent developments, and we will adjust accordingly,” he said. “(W)e definitely will move our growth targets lower.”
The first-quarter GDP was well below the government’s target range of 5-6% for the year.
Mr. Balisacan said the growth outlook would largely depend on developments in the Middle East conflict, expressing hope that oil prices would continue to ease.
“But we do know already that even as the Middle East conflict ends today, the lingering effects of the oil prices and the supply chain disruptions will persist in the coming months.”
SLUGGISH CONSUMPTION
The downtrend in household spending continued in the first quarter.
Household final consumption expenditure — a key driver of the economy — grew by 3% annually, slowing from the 5.28% print in the same quarter last year and 3.8% in the previous quarter.
This was the weakest pace since the 4.8% contraction in the first quarter of 2021. Excluding the pandemic, this was the slowest growth in consumption since the 2.6% in the third quarter of 2010.
Mr. Balisacan said the lingering effects of the corruption scandal continued to weigh on consumer and business sentiment.
“But I think that we are gradually moving out of that situation. The administration has initiated many reforms toward establishing accountability and transparency in government programs,” he said.
National Statistician Claire Dennis S. Mapa said inflation has historically been a major factor behind slower household consumption.
Inflation averaged 2.8% in the first three months of the year, amid faster price increases in fuel, electricity, and food.
Government spending grew by 4.8% in the first quarter, much slower than the 18.7% a year ago but faster than 0.7% in the fourth quarter.
Jun Hao Ng, assistant economist at Oxford Economics, said the rise in government spending points to a recovery after the corruption scandal.
“We expect government spending and project implementation to accelerate in the coming months as agencies operationalize their catch-up programs,” Mr. Balisacan said.
Gross capital formation, the investment component of the economy, contracted by 3.3% in the first quarter, from 4.5% a year ago. However, it was an improvement from the 9.4% decline in the fourth quarter.
The PSA said this was mainly due to the 2.8% decline in construction, which in turn was driven by the 31.5% drop in government construction.
“A breakdown of the data shows the main cause of the weakness was, once again, the flood control corruption scandal,” Gareth Leather, senior Asia economist at Capital Economics, said in a commentary.
He noted construction has dropped for a third consecutive quarter or since President Ferdinand R. Marcos, Jr. announced a crackdown on anomalous flood control projects in his State of the Nation Address last July.
Mr. Ng said that the contraction in investment “suggests the recovery was slow even prior to the war, which would have hit sentiment further.”
Mr. Balisacan said the government’s policy thrust right now is to regain the confidence of consumers and the business sector.
Exports of goods and services rose by 7.8% in the period ending March from 7.1% a year ago, while imports of goods and services grew by 6.1%, slowing from the 10.3% growth a year ago.
WEAK SERVICES
By major economic sector, services, which accounted for 63.2% of total GDP, grew by 4.5% in the first quarter. However, this was slower than 6.2% a year ago.
Chinabank Research said services posted its weakest performance since the pandemic, although the highest growth came from public administration, education, and health. “Reduced discretionary spending will likely continue to weigh on services activity, particularly in retail trade, transportation, accommodation, food services, and recreation,” it said.
Agriculture, forestry and fishing, which contributed 8.1% to GDP, shrank by 0.2% in the first quarter. This was a reversal of 2.2% growth a year ago.
Industry, which accounted for 28.7% of GDP, contracted by 0.1% in the January to March period. This was a reversal of last year’s 4.6% growth.
Gross national income posted an annual 3% growth in the first quarter, decelerating from 7.2% a year ago and 4% in the fourth quarter.
At the same time net primary income grew by 4.5% in the first quarter, slower than 22.2% in the same quarter in 2025 and 11.9% in the previous quarter
STAGFLATION
Meanwhile, Mr. Balisacan said that the country is still not experiencing stagflation despite slowing GDP growth, 7.2% inflation in April and 5% jobless rate in March.
“I do not see it that way. Stagflation, in your standard textbooks, should be thought of as the presence of three things simultaneously. One is high inflation, where the prices keep rising. The other one is slow or stagnant economic growth, and the third is high unemployment,” he said.
“I think before the onset of the crisis, we are seeing improvements in the economy,” he added.
However, some analysts said that the country is already facing stagflation which is likely to persist throughout the year.
“The Philippines is going through a period of stagflation, with a combination of slowing (and very weak) GDP growth and rising inflation placing the central bank in an unenviable position,” Mr. Leather said.
“The Philippines is facing a twin-crisis squeeze, with economic growth already weakened by the flood control controversy and now further strained by surging oil and food prices, as we face a stagflation scenario — high inflation alongside weak growth,” Chinabank said.
Nicholas Antonio T. Mapa, chief economist, Metropolitan Bank & Trust Co. said that the economy had been losing momentum even before the corruption probe and the Middle East conflict on “private underinvestment and a buildup in household debt.”
“Growth in the coming quarters will be challenged even further as inflation surges and Bangko Sentral ng Pilipinas (BSP) will be hard pressed to hike rates,” he said.
“How much policy tightening can do to ease global oil prices is still in question, but what is clear is that the economy will be facing an uphill battle even if National Government can still improve in the second half,” he added.
Deepali Bhargava, regional head of research for Asia-Pacific at ING, said that the first quarter print “points to a much weaker-than-expected growth trajectory for 2026.”
“We do not believe this weak GDP print will deter the BSP from proceeding with a rate hike in June,” she said via e-mail.
The BSP signaled more rate hikes to keep inflation in check amid rising price pressures after the April print exceeded its estimate. Last month, the BSP delivered its first 25-basis-point rate hike in two and a half years to bring the benchmark policy rate to 4.5%.
ANZ Research Chief Economist Sanjay Mathur and Foreign Exchange Analyst Kausani Basak said that the Philippine economy remains in a challenging position amid elevated inflation, weak growth and persistent external headwinds.
“Overall, risks to near-term growth remain skewed to the downside, particularly if inflation stays elevated or global geopolitical conditions deteriorate,” they said in a report.
