Flood control mess slows economic growth in Q4 2025 to 3%
The Philippine economy capped a turbulent 2025 with a weak fourth-quarter performance, dragging full-year growth below target amid a slump in government spending on infrastructure due to the widespread flood control corruption scandal.
Gross domestic product (GDP) growth in the fourth quarter slowed sharply to just 3 percent, down from the already disappointing revised 3.9 percent in the third quarter, the Philippine Statistics Authority (PSA) reported on Thursday.
Excluding the pandemic slump, state statisticians said this was the worst performance since the 1.8-percent contraction recorded in the fourth quarter of 2009.
“To be honest, we expected that there would be a slowdown as a consequence of the measures we are putting in place. But the extent is something that I myself did not expect,” Economic Planning Secretary Arsenio Balisacan said.
“The source of the deceleration—the main one—is weakened consumer and business confidence resulting from this infrastructure corruption scandal. We are implementing measures quickly to reverse this and regain trust and confidence in government,” he added.
The country closed 2025 with full-year growth of 4.4 percent—a letdown from the 5.7 percent recorded in 2024 and marking the third consecutive year the Marcos administration has missed its growth target.
The result fell short of the 5.5-percent to 6.5-percent goal set for 2025 and the full-year print was also the slowest pace since 2011.
The figure even missed the government’s downgraded 4.7-percent to 4.8-percent forecast, which had already factored in a slowdown after the weak third-quarter print rattled economic and business confidence.
Construction decline
As in the July-September period, the fourth-quarter slump was largely driven by the corruption scandal as figures showed that government infrastructure spending contracted by nearly 42 percent.
The pullback in infrastructure spending was the steepest since the second quarter of 2011, when outlays plunged 62 percent as the Aquino administration also grappled with an antigraft campaign.
Latest data from the budget department showed that infrastructure spending opened the fourth quarter on a weak note, plunging in October by 40.1 percent to P65.9 billion, down from P110 billion a year earlier.
“Lower infrastructure spending is expected to continue to weigh on overall government disbursements for the rest of the quarter while the Department of Public Works and Highways boosts its efforts to address corruption issues, ramp up ongoing investigations and validations, and resume construction activities,” said the October disbursement report of the Department of Budget and Management (DBM).
October marked the fourth straight month that expenditures fell on an annual basis, or since the 25.3-percent drop in July after the corruption scandal blew wide open.
Catchup plans
According to Balisacan, the government is already rolling out catchup measures “intended to regain trust and confidence and sustain the fundamentals of the economy.”
“And also to ensure that not only public spending is more justified and less corrupt, but also that the growth that we generate is resilient and more inclusive,” he said.
“We don’t expect that growth will recover to its peak in the first quarter, because we expect some still lingering effects of those measures. But we will see, hopefully by late February, the acceleration of the pace. We should see improvements in 2026 and beyond,” Balisacan said.
As the Philippines prepares to chair the Association of Southeast Asian Nations (Asean) this year, the Marcos administration is hopeful that 2026 will serve as a rallying point to steer the economy back on track.
For the private sector, however, serious structural reforms are needed to recover from the dismal economic growth in 2025.
“This is a clear signal that consumption alone cannot sustain the economy,” said Donald Lim, president of the Management Association of the Philippines.
Household spending, which accounts for about 70 percent of the economy, is traditionally boosted by holiday spending, but it grew by only 3.8 percent in the fourth quarter year-on-year, down from 4.1 percent in the previous quarter.
For Makati Business Club executive director Rafael Ongpin, the disappointing figures highlighted deep structural weaknesses despite years of liberalization measures.
“These economic reforms need to be complemented by reforms in transparency, governance, and ease of doing business,” Ongpin said.
He noted the need for a more transparent budget process and legislative reforms, such as the freedom of information bill and amendments to the bank secrecy law.
For Federation of Philippine Industries chair Elizabeth Lee, “Without a strong industrial backbone, the economy risks overdependence on services, which cannot fully absorb employment demand or provide the production base for global competitiveness.” —WITH REPORTS FROM LOGAN KAL-EL ZAPANTA AND INQUIRER RESEARCH
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