THE ECONOMY could struggle to recover in the near term with weak confidence continuing to dampen consumption, investments and public spending, ANZ Research said.
“We are not certain at this stage whether growth in the Philippines will inflect for the better anytime soon,” Sanjay Mathur, ANZ Research chief economist for Southeast Asia and India, said in a report on Tuesday.
Mr. Mathur noted that the flood control corruption scandal has hit consumer and business confidence beyond just slowing government spending, particularly for infrastructure projects.
“The governance issues surrounding public infrastructure projects have not only led to a significant deceleration in government capital spending, but have also taken a toll on business and household confidence,” he said.
Last year, extensive flooding led to the discovery of defective or even non-existent flood control projects. Evidence has implicated Public Works officials, legislators, and private contractors in kickback schemes.
As a result, gross domestic product (GDP) growth slumped in the second half of 2025.
GDP growth settled at 3.9% in the third quarter before slowing further to 3% in the fourth quarter, which brought full-year growth to a post-pandemic low of 4.4%.
Economic managers have since acknowledged that governance concerns continue to weigh on investors and household sentiment.
“The share of corporates intending to raise investment has tapered off, whereas households are downbeat on their economic prospects over the next 12 months,” Mr. Mathur noted. “In fact, consumer confidence is lower now than during the pandemic.”
According to the Bangko Sentral ng Pilipinas’ (BSP) Business Expectations Survey, businesses were more optimistic in the fourth quarter, with their overall confidence index (CI) rising to 29.7% from 23.2% in the third quarter but falling from 44.5% a year earlier.
However, businesses turned sour for the first quarter with a 23.7% CI.
Meanwhile, consumer confidence worsened in the fourth quarter, with their CI at -22.2% from -9.8% in the third quarter and -11.1% a year prior.
This was the worst consumer outlook since the pandemic, when the consumer CI came in at -24% in the fourth quarter of 2021.
Whether the government can resume the pace of infrastructure spending also remains uncertain, Mr. Mathur added.
“We do not know how quickly infrastructure spending can be revived,” he said.
“The last restructuring of public finances in 2001 resulted in a prolonged period of low and static public spending. It is not clear whether this will be the case or a faster resolution of governance issues will occur,” he added.
Infrastructure spending declined for a fifth straight month in November, falling 45.2% year on year to P48 billion.
Mr. Mathur said the BSP could ease further to boost the economy, although “weak confidence may restrict its impact.”
“A more expansionary fiscal stance is critical in the present environment,” Mr. Mathur added.
The central bank has been on an easing cycle since August 2024, having delivered a total of 200 basis points (bps) worth of rate cuts.
Mr. Mathur expects the Monetary Board to reduce benchmark borrowing costs one last time by 25 bps, which would bring the key policy rate to 4.25% from the current 4.5%.
BSP Governor Eli M. Remolona, Jr. has said that the monetary authorities could ease once more this month to help spur domestic demand, though the Monetary Board has also noted that the end of the easing cycle is nearing.
The Monetary Board will hold its first policy meeting of the year on Feb. 19. — Katherine K. Chan
