The path to economic growth
The Bangko Sentral ng Pilipinas (BSP) is widely expected to cut its policy rate—which guides banks’ own lending rates—by another quarter point to 4.5 percent at its last meeting of this turbulent year on Dec. 11, a telegraphed move that policymakers fervently hope will help jolt the sagging Philippine economy back onto the path of robust growth.
To recall, the country’s economy grew by an unexpectedly anemic 4 percent in the third quarter of this year. It was the slowest in four years and far below market consensus of 5.2 percent, thus the need for a “positive catalyst from policymakers,” according to Reinielle Matt Erece, an economist at Oikonomia Advisory & Research Inc.
The conventional wisdom is that by influencing banks to lower their own lending rates through a cut in the BSP benchmark, then individuals as well as corporations will be enticed to borrow money to either purchase a big-ticket item, invest in property, venture into entrepreneurship, or either expand or put up their own business, all of which will ramp up economic activity.
The growing concern, however, is that this tried-and-tested formula will not work as well this time around, as the still-widening flood control scandal has been weighing on both business and consumer confidence and practically ground public works to a halt since President Marcos blew the lid on it last July.
Considerable unease
The third quarter gross domestic product (GDP) growth report of the Philippine Statistics Authority was crystal clear: the sharp slowdown was mainly due to the sharp contraction in public works construction. According to the latest data from the Department of Budget and Management, government capital outlays had sharply fallen by 10 percent year-on-year to P112.9 billion. Of that amount, P84.9 billion went to vital infrastructure projects, diving by nearly 22 percent.
The plunge is a direct result of the corruption probes into the Department of Public Works and Highways’ flood control projects and rigorous review of project implementation that has caused contractors, even the legitimate ones, to slow down on fears that they will not get paid on time, if at all.
The considerable unease over the extent of the corruption as well as the effects of the successive strong typhoons have also led to depressed household consumption, causing the growth of this main driver of the economic engine to decelerate to 4.1 percent, the lowest in four years.
The deceleration in the growth of household spending is particularly worrisome as it came despite the minimal increase in the prices of basic commodities, particularly rice, and lowering borrowing costs that should have boosted Filipinos’ ability to spend more.
Main driver of slowdown
These factors then led to a barrage of full-year GDP growth downgrades for 2025, with the Philippine economy now expected to grow below 5 percent for 2025, undershooting the 5.5 to 6.5 percent target by the Marcos administration, which now has no choice but to revisit those numbers and admit that the target will not be met.
If the growing consensus comes to pass, the Marcos administration will miss its growth target for the third straight year. Last year, the economy expanded by 5.6 percent, falling short of the revised 6 to 6.5 percent target. This year, economists expect a further deceleration to below 5 percent, no thanks to weak infrastructure and household spending.
S&P Global Ratings, for example, downgraded its GDP growth forecast for the Philippines this year to 4.8 percent, down from the earlier estimate of 5.6 percent, prompted by the lackluster growth in the third quarter.
“Investment, especially by the public sector, has been the main driver of the slowdown. This has also been spilling over into consumer confidence,” said S&P senior lead economist Vincent Conti. Added Moody’s economists: “When both households and firms turn cautious in unison, confidence in the economic outlook clearly falters.”
Crisis of confidence
Clearly, the widespread corruption that has cast a long shadow on infrastructure projects is taking a heavy toll on the economy, and further cuts—while welcome—will likely not give enough of a jolt.
As De La Salle University said in an October report written by Jesus Felipe, Mariel Monica Sauler, Gerome Vedeja, and Clarence Gabriel Fernandez of its School of Economics, “monetary policy cannot do much to activate the Philippine economy. BSP cannot and will not rate-cut our way out of corruption investigations.”
The government must exert more efforts in calming the political uncertainty and drumming up moves to grow the economy. The Independent Commission for Infrastructure and the Office of the Ombudsman must deliver credible prosecution of the masterminds and cohorts in the massive flood control corruption not only for the domestic audience but also the international investors.
The Marcos administration should lose no time in resolving this crisis of confidence, if it wants the Philippines back on the path of economic growth.
