The Philippine economy lost further momentum in the second quarter as a sharp pullback in investment and increasingly cautious households exposed deeper weaknesses in domestic demand, according to BPI Lead Economist Emilio S. Neri Jr.
Gross domestic product grew 2.3 percent from a year earlier, slowing from 2.8 percent in the first quarter and falling well short of the 5.4 percent expansion recorded in the same period last year.
The result points to a broadening slowdown as elevated inflation, softer consumption and weak capital spending weigh on activity.
Investment was the biggest drag. Gross fixed capital formation contracted 13.7 percent in the second quarter, compared with a 2.5 percent decline in the previous quarter.
Construction spending fell 14.8 percent, with government construction plunging 32.4 percent. The decline reflects continuing governance issues surrounding public infrastructure, Neri said.
The sharp drop in infrastructure spending came even as government consumption rose 8.3 percent, suggesting that fiscal resources were increasingly directed toward social support and measures designed to cushion households from the impact of higher oil prices.
Private construction offered little relief. Developers remained cautious amid excess real estate inventories and weak sentiment, limiting expansion plans and further restraining investment.
The slowdown also spread to equipment spending. Durable equipment investment fell 13.6 percent, indicating that companies were not only postponing construction projects but also delaying purchases of machinery and other capital goods.
Road transport equipment spending dropped 28.4 percent, reflecting the likely combination of elevated fuel costs and weaker demand for vehicles. Spending on mining and construction machinery fell 42.7 percent as construction companies cut equipment purchases.
Energy-related investment was a notable exception. Spending on power-generating machinery increased 23.3 percent from a year earlier, following a 103.9 percent surge in the first quarter, pointing to continued capital spending in the power sector despite the broader investment downturn.
The investment contraction poses a risk beyond the immediate impact on GDP. A prolonged period of weak capital formation could reduce the economy’s capacity to expand output, particularly if businesses continue to defer projects amid inflation, policy uncertainty and softer demand.
‘If investment spending remains weak due to elevated inflation, policy uncertainty, and softer demand conditions, the economy could emerge from the current slowdown with a lower growth potential than before,’ Neri said.
Household spending was similarly restrained. Consumer expenditure grew 2.8 percent in the second quarter, suggesting that households were becoming more selective as higher prices squeezed purchasing power.
Consumers appeared to prioritize essential goods and services while reducing discretionary spending, a shift that could further limit the contribution of household demand to economic growth.
Inflation risks remain elevated, Neri said, with oil prices and adverse weather among the key threats. Potential second-round effects could also broaden price pressures if higher transport, food and production costs begin feeding into wages and other goods and services.
The outlook could improve in the second half if economic activity begins to recover. Such a rebound may give the Bangko Sentral ng Pilipinas greater scope to put more emphasis on anchoring inflation expectations rather than responding primarily to weak growth.
For policymakers, the challenge is becoming more complex. Supporting demand without allowing temporary supply shocks to become entrenched in inflation expectations will be critical, particularly as weak investment threatens to weigh not just on current growth but also on the economy’s longer-term productive capacity.