Growth measured as the gross domestic product (GDP) is seen to have slowed sharply to 1.9 percent year-on-year in the second quarter of 2026, down from 2.8 percent in the previous quarter, according to the Bank of the Philippine Islands (BPI). Excluding the pandemic years, this marks the country’s weakest quarterly expansion since 2009, the lender’s lead economist Jun Neri, said. Je said the economic slowdown was primarily driven by a collapse in public infrastructure spending, which contracted by 43.4 percent as project delays and sluggish budget execution continued to weigh heavily on performance. Concurrently, private investment softened due to falling building permit approvals and cautious business sentiment, while household spending weakened under the weight of rising transport and utility expenses.
The domestic economy also felt the full impact of the US-Iran conflict during the quarter. Heightened geopolitical uncertainty and elevated global oil prices squeezed corporate profit margins and dampened overall market confidence. Despite these significant headwinds, the manufacturing sector found crucial support in solid export performance. Strong international demand for artificial intelligence-related electronics, electric vehicles, and solar technology helped offset broader losses and prevented a deeper economic downturn.
Headline inflation showed slight relief by easing to 6.2 percent in July from 6.4 percent in June, though monthly consumer prices rebounded due to surging electricity rates and domestic fuel costs. This upward pressure on energy was amplified by the reinstatement of excise taxes on liquefied petroleum gas and kerosene, which negated the consumer relief provided by stabilizing rice supplies and lower food prices. Underlying price pressures remain firm, with core inflation continuing its upward trajectory.
Looking ahead, a modest economic recovery is anticipated for the third quarter of 2026. Growth comparisons will become more favorable as the initial impact of last year’s infrastructure delays enters the base period, while emerging signs of de-escalation in the Middle East may ease production costs and restore business sentiment.
However, substantial upside risks to inflation persist. The ongoing Super El Niño threatens agricultural output while simultaneously straining water supplies and reducing hydropower generation, which could drive food, water, and electricity prices higher. Additional domestic pressures include elevated fertilizer costs and the first tranche of the 85-peso daily minimum wage hike in the National Capital Region, both of which threaten to trigger secondary price increases. Internationally, volatile Middle Eastern oil markets and rising Chinese producer prices continue to pose import cost risks. In response to these persistent forces, the Bangko Sentral ng Pilipinas is expected to maintain its hawkish monetary stance to anchor inflation expectations and support the local currency the peso.
