The Philippines reported its slowest quarterly GDP growth of 2.1 percent since 2009 excluding the pandemic years. This is the lowest among reporting ASEAN economies with Vietnam reaching almost 10 percent and Indonesia, Malaysia and Singapore growing at about 5.5 percent. The performance of peer economies runs contrast to the government’s explanation that the slowing growth and crisis-like condition is a global phenomenon. All these nations are experiencing the similar effects of elevated energy prices and imported inflation as well as the extreme weather conditions brought about by changing climate patterns. The difference lies primarily in domestic demand, investment conditions, export competitiveness, and economic structure.
More worrying than the headline is the momentum beneath it. On a seasonally adjusted basis, the economy grew by just 0.1 percent from the previous quarter. I originally compared this economy to a car that is slowing down unnecessarily as the driver has released the gas for so long. The quick fix is for the driver to step on the gas. However, this works only on flat roads. A better analogy is one that relates to a road sloping upward. What we are experiencing is what is called stall speed in a manual transmission vehicle. It is like a car climbing a steep road or a hill in too high a gear. The engine labors, the RPM drops toward idle, and unless the driver acts, the engine dies. The hill is the headwinds represented by inflation and the climate effect. The RPM dropping toward idle is the 0.1 percent quarter-on-quarter momentum. Too high a gear is the stuck public spending. The money is there, but it is not reaching the wheels. The engine dying is the economy tipping into contraction. Our economy is not in recession, but it is close to losing lift.
The lost lift can be traced to the following: household consumption which is 75 percent of the economy, grew only 2.4 percent, down from 4 percent a year ago. This alone accounts for about 1.2 of the 1.9 percentage points lost from 3Q25. Agriculture contracted 4.8 percent where palay and corn output fell by more than 17 percent. Industry was flat only because public construction fell less steeply. Public construction actually improved from a 33.4 percent plunge in the second quarter to -15 percent. Investment in durable equipment fell 7.2 percent. Even services slowed to 3.7 percent as retail trade and finance felt the squeeze.
Note that there remain bright spots-exports grew 8.6 percent, with electronics up 19.4 percent on AI-related demand, and government consumption rose 6.8 percent. These cushions are working but the domestic private engines are not. The domestic engines are stalling because four shocks are feeding each other. First, the Middle East conflict pushed up fuel, power and transport costs, driving inflation to 7.8 percent in October. Second, the BSP responded with rate hikes to 5.5 percent, and with a volatile peso, businesses are delaying investment. Third, the flood-control scandal has frozen public works. The money has been released, but officials hesitate to sign, and unpaid contractors are cutting workers and material orders. Fourth, the monsoon hit farm output, and higher food prices loop back into inflation. Our neighbors faced the energy and weather shocks too. What they did not have was the freeze in public investment on top of a consumption squeeze due to high prices.
The instinct may be to step on the gas but that would be a mistake. With inflation near 8 percent and a weak peso, broad cash transfers or rate cuts would feed inflation and pressure the currency, hurting the very households they aim to help. A driver going uphill does not floor the accelerator. The driver must downshift so the engine’s power can actually reach the wheels.
Downshifting means four things. First, unfreeze public works safely. Let clean-record, foreign-funded, rail and port projects proceed now, and limit full re-validation to the flagged flood-control portfolio. Support officials who follow documented procedures, use third-party engineers to verify progress, and publish disbursements weekly. Because the funds are already released, this is the largest growth gain available within two quarters, at little new fiscal cost.
Second, target cost relief rather than hand out cash. Some initiatives are being done already but they can be improved, such as fuel support for drivers, farmers and fishers, time-bound, partial fuel excise adjustment with a sunset clause and well-timed rice imports to cap food prices. Third, rebuild farm output quickly through replanting support and fast crop-insurance payouts, and prepare now for El Niño. Fourth, let the BSP re-anchor inflation expectations, the precondition for rate cuts next year, while fast-tracking investments in the AI and electronics boom-this is the one engine still running aligned with the growth in Indonesia and Vietnam.
Finally, the government should make the economy THE PRIORITY. It must be honest about its expectations and what it can achieve. Reaching even the 3.5 percent floor of this year’s target requires 6.3 percent growth in the fourth quarter, which is very unlikely from 0.1 percent momentum. A credible downgrade, paired with a published infrastructure catch-up schedule, would do more for confidence than defending an unreachable target. The engine is sputtering, but it has not died. The fix is in our hands, precisely because the problem is not global and it should not be treated as one.