The Philippine economy could regain some momentum in the second half, but the strength of the recovery will depend heavily on a revival in infrastructure spending, easing price pressures and a pickup in household demand.
In a report, Deutsche Bank said it expects gross domestic product (GDP) growth to accelerate to 4.4 percent in the second half from just 2.6 percent in the first six months, supported mainly by faster infrastructure spending and government subsidies that could help cushion consumers from elevated prices.
Still, the bank lowered its full-year growth forecast to 3.5 percent from 3.7 percent, placing it at the bottom of the government’s revised 3.5 to 4.5 percent target.
Bank of America (BofA) Global Research is more cautious, maintaining its 2.5-percent growth forecast for 2026 and expecting economic expansion in the second half to remain broadly similar to the first.
BofA said lower fuel prices and higher minimum wages could eventually support industrial activity and consumption, although these may not emerge as meaningful growth drivers until late in the year.
The contrasting outlooks reflect uncertainty over how quickly domestic demand can recover after GDP growth slowed to 2.3 percent in the second quarter from 2.8 percent in the first quarter. First-half growth settled at 2.6 percent.
At the heart of the uncertainty is continued weakness in the economy’s traditional growth engines, particularly household consumption and investment. Private consumption grew by just 2.8 percent in the second quarter.
Deutsche Bank said households turned more cautious following the spike in inflation and cutback on discretionary spending.
Investment spending also contracted by 9.2 percent in the second quarter.
Domestic demand, which includes consumption, government spending and investment, grew by only 0.9 percent from 2.1 percent in the first quarter.
Manulife Investments Philippines head of equities Elle Jamil said its checks with companies and distribution channels likewise point to soft household demand.
‘Channel checks with different consumer companies and distribution channels show that domestic consumption continues to be tepid,’ Jamil said.
Jamil noted that banks have continued to see strong consumer loan growth, particularly in credit cards and personal loans, suggesting that borrowing is already supporting some consumption.
Meanwhile, corporate and middle-market loans have been concentrated largely in working capital aside from major infrastructure projects, reflecting continued caution among businesses.
The weak operating environment is also weighing on corporate earnings expectations.
‘Against a very volatile backdrop, both oil prices and interest rates could remain elevated and continue to be an overhang to the full recovery of consumption and business confidence this year,’ Jamil said.
Jamil expects big-ticket consumer spending to remain weak, keeping interest rate-sensitive sectors such as property under pressure. However, consumer companies with strong brands and pricing power could remain resilient, while banks with strong deposit franchises could still grow if they contain deterioration in asset quality.
The weak domestic economy is also complicating the Bangko Sentral ng Pilipinas (BSP)’s policy outlook as it balances subdued growth against inflation that remains above target.
Manulife Investments Philippines head of fixed income Jean Olivia de Castro expects the BSP to shift toward a measured 25-basis-point hike followed by a hawkish pause rather than faster tightening.