Hope for a flimsy economy

As we ended 2025 with a dismal economic growth performance that was virtually cut in half by the massive corruption scandal from earlier projections, the question to ask is: What could and should be done to arrest our economy’s deterioration? The answer entails understanding where the weaknesses were, and where the nascent strengths are that we might possibly build on to reverse and overcome the slide in the short to the long term. Examination of the latest data on our economic performance tells us what the key drags and drivers have been.

Whether as a production activity on the supply side or as a spending category on the demand side, it was clearly the severe 17. 9-percent full-year contraction in government construction that dragged the entire economy down. In the fourth quarter alone, government construction was cut by nearly half (42 percent) from the previous year’s level. It actually began falling in the second quarter (-8.7 percent), even before the flood control scandal broke out as President Marcos called wide public attention to it in his July State of the Nation Address. After that “mahiya naman kayo!” speech, the decline accelerated to -26.2 percent in the third quarter, and then on to the precipitous dive in the fourth.

With hindsight, the revelations tell us that our economy’s seemingly robust growth performance reported in recent years had been flimsier than it actually was. A limitation of our gross domestic product (GDP) statistics is that government construction, which counts as investment spending in the GDP accounts, is measured using government data on fund disbursements for infrastructure projects. But as has become evident for many years, disbursing the money is not the same as actually using the money for its intended purposes. We now see how huge sums of that money actually went to the purchase of luxury cars, lavish parties, and other conspicuous consumption, rather than spending that builds capacity for more future production, which is what fixed investments represent.

A comparison with our Asean peers on how our respective GDPs break down into their spending components immediately reveals how our economy is on a weaker footing relative to our neighbors. It’s well-known that private consumption spending dominates our GDP, as it does elsewhere, but nowhere near as dominant as in the Philippines, where it consistently accounts for 70 to 73 percent. Contrast that with 54 to 60 percent in Indonesia, 60 to 63 percent in Malaysia, 50 to 60 percent in Thailand, 53 to 55 percent in Vietnam, and a mere 31 percent in Singapore (where exports dominate the demand side of GDP, as further discussed below). Fixed investment, combining both private and public investments, makes up 23 percent of our GDP spending. While this is comparable to the shares in Malaysia, Thailand, and Singapore, it pales in comparison to 30 to 32 percent in both Vietnam and Indonesia. This suggests that those economies are actively building for even more strength in the future, and have indeed been the economies to watch in our part of the world.

But where our weakness really shows is in the role of exports in our economy. Our total export earnings from goods and services are equivalent to only 26 percent of our GDP, dwarfed—nay, stunted—in comparison to 70 to 71 percent in Malaysia and Thailand, 85 percent in Vietnam, and a whopping 180 percent in Singapore. The last is unusual because, as a free port, Singapore is the busiest transshipment point worldwide, where goods pass through, are processed, and then reexported with a higher value. The domestic value added in Singapore, which is what counts toward its GDP, is thus a mere fraction of total export values. But ours has persistently been an inward-looking economy where most producers seem content with selling to the limited (and highly protected) domestic market, unable to tap virtually unlimited opportunities for growth from selling to the world markets. And it is the overly trade-protective policy environment that has always reinforced and perpetuated this inward-looking stance for decades.

There is good news, though. What’s remarkable and even surprising about our latest GDP data is how our exports actually grew much faster than our overall economy did in 2025, by 8.1 percent, and even at a double-digit 13.2 percent in the fourth quarter. This is despite United States President Donald Trump’s tariff hikes and the global trade slowdown they induced. If this indicates that our exporters are now able to tap more nontraditional overseas markets and sell more nontraditional exports, then we’re moving in the right direction. The imperatives for strengthening our economy in the short to long term would thus be: one, do whatever it takes to induce more public and private investments, and two, shape up to get more overseas buyers for the goods and services our economy has to offer.

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