Oil price shock limits Q1 GDP growth to 2.8%
Hit by a double whammy of Middle East oil price shock and lingering graft probe constraints, Philippine economic growth softened to 2.8 percent in the first quarter, the weakest pace seen after the COVID-19 pandemic.
The latest gross domestic product (GDP) growth print further slowed down from 3 percent in the fourth quarter of 2025, the Philippine Statistics Authority reported on Thursday.
This now marks the fourth consecutive year that growth has missed the Marcos administration’s target, as it landed below the already lowered 5 percent to 6 percent goal for 2026. It was also way below the 5.4 percent GDP growth delivered in the same period a year earlier.
“We recognize that this outcome reflects the combined impact of significant domestic and global challenges,” Economic Planning Secretary Arsenio Balisacan said.
“These challenges are real, and the Marcos administration is confronting them directly and decisively. Restoring public trust and strengthening institutional credibility remain among the administration’s highest priorities,” he added.
Excluding the recession caused by the pandemic, economic growth in the first quarter was the lowest since the first three months of 2021, National Statistician Dennis Mapa said.
The latest data also came in worse than the 3.4-percent median growth estimate of 14 economists polled by the Inquirer.
Iran war fallout
“Our growth performance trails Vietnam, Indonesia and China, among others in the region,” Balisacan said.
He blamed the weak growth on the Middle East conflict, a scandal involving billions of pesos in fraudulent state-funded flood control projects, and the delayed approval of the national budget, which hampered infrastructure projects.
The bogus flood control projects, believed to have cost taxpayers billions of dollars, sparked protests and arrests across the storm-battered archipelago this year.
Consumer prices had also spiked to a three-year high of 7.2 percent for the quarter, which Balisacan called a “major factor” leading to the lowered GDP growth.
The country had still been trying to rebound from weak growth in 2025, when infrastructure spending contracted sharply amid the flood control corruption scandal, when the Iran war erupted in late February.
Hampered spending
Out of the five major expenditure items, four recorded declines.
Household spending, hit by weaker purchasing power due to the oil crisis, slowed to 3 percent from 5.3 percent in the fourth quarter of 2025. Excluding the pandemic slump, this was the weakest since the third quarter of 2010, when it grew by 2.6 percent.
Growth in government spending also sharply fell to 4.8 percent from 18.7 percent.
Gross capital formation contracted by 3.3 percent, reversing the 4.5 percent expansion previously, as fallout from the flood control corruption scandal continued to delay project rollouts.
Import spending growth, an indicator of industrial demand, dropped to 6.1 percent from 10.3 percent.
The only bright spot was export performance, which grew at a faster pace of 7.8 percent from 7.1 percent on robust demand for semiconductors and electronics, supported by continuing global tariff exemptions.
The Marcos administration is expected to downgrade growth assumptions following the disappointing outcome.
“We definitely will move our growth targets lower… given the situation, especially the global uncertainty remaining highly elevated,” Balisacan said.
“You can’t keep insisting on something that is no longer tenable. The world has changed so much since last year, so we have to reflect that in our growth assumptions,” he added.
No return to ‘Sick Man’
But despite the anemic growth rates in the past few quarters, he said the past “Sick Man of Asia” stigma won’t likely return anytime soon.
“The economic fundamentals of this country were very different when we were called the sick man of Asia. We have sustained growth for many years. We are also implementing reforms to address structural issues,” he said, adding that growth would have to slow for many years before such a label could apply.
“Our potential growth remains at 6 percent. It’s just a matter of rebuilding confidence and sentiment,” he added.
The Development Budget Coordination Committee is scheduled to meet on May 11.
Meanwhile, Finance Secretary Frederick Go expressed optimism that a rebound would happen soon.
“The economic team is totally optimistic that once the war in Iran is over, the growth of our economy will resume its previous path. That means we’re looking at mid-5 percent levels as soon as all these uncertainties are over,” he said in a keynote speech at the Association of Southeast Asian Nations-European Union Sustainability Summit in Cebu. —WITH A REPORT FROM AFP
