GOVERNMENT spending will likely remain slow until the first half of 2026 as governance issues linger, dragging economic growth below target until 2027, ANZ Research said.
“Public infrastructure spending is unlikely to rebound until governance issues are resolved, probably in the second half of 2026,” ANZ Research economist Arindam Chakraborty said in the think tank’s Asia Economic Outlook for the first quarter of 2026.
The country’s gross domestic product (GDP) growth slumped to 4% in the third quarter after a wide-scale corruption in public infrastructure projects dampened government spending and household consumption.
This was the slowest growth seen in over four years or since the 3.8% contraction in the first quarter of 2021, during the height of the coronavirus disease 2019 (COVID-19) pandemic.
As of September, GDP growth averaged 5%, below the government’s 5.5-6.5% target.
“The primary drag came from a contractionary fiscal stance arising from governance failures in public infrastructure projects,” Mr. Chakraborty said. “This change in fiscal stance has not only disrupted capital formation but also weighed heavily on sentiment, with businesses reluctant to commit new funds and households deferring discretionary spending.”
Government spending fell for a third straight month in October to P430.6 billion, down 7.76% from the P466.8-billion expenditure recorded a year ago.
Meanwhile, household consumption slowed down in the third quarter, growing by 4.1% from 5.3% in the previous quarter and 5.2% a year earlier, as the corruption scandal weighed on consumer sentiment.
ANZ sees the Philippine economy expanding by 4.8% this year, before gradually picking up to 5% in 2026 and 5.6% in 2027.
If all three projections hold true, the Philippines will miss its growth targets until 2027 or for five years in a row.
The government targets 6-7% GDP growth from 2026 until 2028.
Despite this, ANZ expects the Bangko Sentral ng Pilipinas (BSP) to end its current easing cycle with one final 25-basis-point (bp) cut in the first quarter of next year.
“We maintain our forecast for one additional 25-bp cut in Q1 2026, as economic momentum is expected to remain weak at least until the second half of next year,” Mr. Chakraborty said.
The Monetary Board capped off the year with a fifth straight 25-bp reduction at its December policy meeting, bringing the benchmark interest rate to an over three-year low of 4.5%. It has so far lowered key borrowing costs by a cumulative 200 bps since August 2024.
BSP Governor Eli M. Remolona, Jr. has said that they could deliver another 25-bp cut next year that would likely end the current easing cycle, depending on economic data.
The Monetary Board will hold its first meeting of 2026 in February.
Meanwhile, Mr. Chakraborty said increased remittance inflows amid the holidays failed to significantly prop up the peso, noting that the local unit may face more pressures as the remittance season nears its end.
The peso recently hit a fresh low of P59.22 against the greenback on Dec. 9, surpassing the previous record of P59.17 logged on Nov. 12.
The ANZ economist added that they expect the peso to further weaken to the P60-a-dollar level by end-March next year amid persisting domestic pressures.
“We expect the currency to depreciate to 60 against the USD (US dollar) by the end of Q1 2026 before staging a gradual recovery through the remainder of the year,” he said. “Prolonged economic weakness and a deeper-than-expected BSP rate-cut cycle represent key downside risks to PHP’s (Philippine peso’s) trajectory.” — Katherine K. Chan
