The Philippine economy is unlikely to mount a meaningful recovery in the third quarter amid renewed scrutiny of the flood control corruption scandal, prompting BMI Research to slash its full-year growth outlook anew to just 3.3 percent.
In a note to clients, BMI, a unit of Fitch Solutions, said it cut its 2026 gross domestic product (GDP) forecast to 3.3 percent from its 4.7 percent projection in April.
This will put growth below the Marcos administration’s revised 3.5-percent to 4.5-percent target for 2026, possibly extending the government’s run of missed growth goals to four years.
Worse, BMI said it could trim its forecast by another 0.2 percentage point to 3.1 percent if updated data confirm continued weakness in public capital outlays, further dimming prospects for a meaningful third-quarter recovery.
‘Early indicators suggest that the economy entered [third quarter] with less momentum than anticipated. Investment appears to have remained weak. The flood-control investigation has re-intensified, culminating in the high-profile arrest of former [House] Speaker Martin Romualdez-who is the cousin of President Ferdinand Marcos Jr.-on alleged graft charges,’ BMI said.
‘The increased scrutiny probably delayed project implementation further, weighing on both public and private construction,’ it added.
The economy will now need to grow by an average of 3.9 percent in the second half to meet BMI’s 3.3-percent full-year forecast, a steep jump from the 2.6-percent expansion recorded in the first half.
To meet the government’s lower-end growth target of 3.5 percent, meanwhile, Socioeconomic Planning Secretary Arsenio Balisacan earlier said the economy would need to expand by an even more ambitious 4.4 percent in the second half.
Balisacan said the government was looking to the fourth quarter to drive a recovery, as they work to at least bring public construction back to zero growth instead of a contraction, which he said could add about 1 percentage point to GDP.
As of this writing, the Department of Budget and Management has yet to release updated data on infrastructure spending in July onwards. However, other figures showed that the Department of Public Works and Highways had already received 99.5 percent of its budget to catch up on project implementation as of end-August.
Although BMI said the country’s manufacturing industry remained robust amid the global artificial intelligence investment boom, this was not enough to offset the deterioration in other economic indicators.
‘Elevated inflation has continued to erode household purchasing power and discourage discretionary spending. Labor market conditions have also deteriorated, with unemployment rising to a four-year high,’ the think tank said.
‘Severe weather conditions likely added to the drag on growth. Tropical storms and monsoon flooding led to repeated school and workplace closures, disrupting economic activity and household incomes,’ it added.
BMI now expects inflation to average 5.7 percent this year, below the central bank’s 6.1 percent projection but still well above its 3-percent target.
Inflation could remain under pressure from peso weakness, with the currency having already breached the 62-per-dollar level and potentially weakening further toward 63:$1.