FOLLOWING the economy’s dismal second quarter performance, Pantheon Macroeconomics slashed its 2026 growth forecast for the Philippines to below 3 percent as it expects recovery to remain subdued.
Pantheon Macroeconomics on Monday cut its growth forecast for this year to 2.8 percent from a previous 4 percent outlook. For 2027, it now expects the country’s gross domestic product (GDP) to grow by 4 percent, down from its previous forecast of 5 percent.
If the think tank’s forecasts hold, this would mean the Marcos administration would once again miss its recalibrated GDP targets of 3.5 to 4.5 percent and 5 to 6 percent for 2026 and 2027, respectively.
The potential misses would extend a three-year streak in which economic growth has fallen short of the government’s targets, despite successive downward revisions to its growth assumptions.
‘Nonetheless we have reduced our 2026 [and 2027] growth forecast…as the recovery looks set to be even more lackluster than we previously estimated,’ the think tank said.
Pantheon Macroeconomics said the sharp contraction in fixed investment was the main reason behind the weak second-quarter performance, with capital spending falling 7.9 percent quarter-on-quarter to its lowest level in three and a half years.
Construction investment dropped 9.6 percent, while durable-equipment capital expenditure fell by 6.3 percent for a fourth straight quarter.
‘Any bounce from the Q2 contraction is likely to be minor, with industry and construction still operating at below-average capacity and, unsurprisingly, surveyed expansion plans remaining depressed amid plummeting business confidence and flat-at-best market sentiment,’ the research firm said.
It also tempered expectations of a quick recovery in government infrastructure spending, noting that the slump in projects had already begun before the establishment of the Independent Commission for Infrastructure (ICI).
At the same time, the firm noted that the government may have limited fiscal room to ramp up spending as weaker economic activity weighs on revenues.
Quarterly government spending growth slowed to 1.6 percent from 6.5 percent, while the rolling annual budget deficit widened to 5.5 percent of GDP in the second quarter from 5.2 percent, the think tank said.
Household consumption, the main driver of the country’s economic growth, may likewise remain subdued as families continue rebuilding savings depleted during the pandemic and the subsequent cost-of-living crisis.
Pantheon Macroeconomics noted that household consumption growth has slowed from around 5 percent through mid-2025 to roughly 3 percent recently, settling at 2.8 percent in the second quarter.
Meanwhile, gross household savings more than doubled to P973 billion in 2025 from P400 billion in 2024, raising the savings share of total income use to 3.8 percent from 1.7 percent, its highest level in more than a decade.
The firm, however, said the savings rebuild remains incomplete. Households accumulated P1.642 trillion in dis-savings between 2020 and 2022, of which only about 87 percent has been rebuilt since 2023.
‘The savings rebuild isn’t quite complete, though, so we expect to see consumption growth remaining subpar, at least until mid-2027,’ Pantheon Macroeconomics said.
It also noted that the recent inflation shock has further weighed on household sentiment, with the share of consumers planning to purchase big-ticket items over the next year falling to 3.6 percent in the second quarter from 6.4 percent in the first quarter, matching its pandemic-era low.
‘The only silver lining is that the worst of the inflation pinch likely is in the rear-view mirror, which should, at the very least, help to catalyze a turnaround in extremely depressed consumer confidence,’ it said.
The firm also said that while the unemployment rate has eased, employment remains barely higher than a year earlier, while fewer firms plan to expand their workforce.