The Philippine government’s bid to grow the economy by 3.5 percent this year is looking ‘increasingly elusive’ amid persistent headwinds, according to the Congressional Policy and Budget Research Department (CPBRD).
‘Evaluating the growth figures of the first half of 2026 against the present macroeconomic context strongly suggest that achieving even the lower-end of the downgraded government’s full-year [gross domestic product] growth target of 3.5 percent seems highly unlikely,’ the CPBRD stated in its new report.
The congressional research arm’s assessment adds to a growing number of think tanks that have forecast Philippine growth below the government’s target range of 3.5 percent to 4.5 percent for the year.
The economy needs to grow by at least 4.4 percent in the second half to hit the lower end of the target, after expanding by just 2.6 percent in the first half.
According to the CPBRD, the economy is being squeezed from both the demand and production sides, while elevated financing costs continue to weigh on activity.
On the demand side, households and businesses are becoming more cautious, with weaker consumption and investment appetite limiting the economy’s ability to generate momentum.
Official data showed gross capital formation, a measure of investment, contracted by 9.2 percent in the second quarter, marking its fourth consecutive quarterly decline. Household consumption, meanwhile, grew by just 2.8 percent, its slowest pace outside the pandemic period in more than a decade.
The CPBRD linked this to persistent inflation, high borrowing costs, and uncertainty that are discouraging spending and new investments.
‘All of these factors, in turn, suggest that the growth potential of the Philippine economy is sorely constrained throughout the near-term,’ it added.
The weakness is also spilling into production, particularly industry. The CPBRD pointed to the sharp downturn in construction and mining, which contracted by 13.9 percent and 9.8 percent, respectively, as major drags on growth.
Services, meanwhile, are no longer providing the same lift they did earlier in the recovery. The sector continues to expand, but the CPBRD noted a broad moderation across several service activities during the second quarter.
Data showed growth in wholesale and retail trade slowed to 4.6 percent from 4.7 percent in the previous quarter, while transportation and storage eased to 3.8 percent from 5 percent, accommodation and food services to 1.7 percent from 4.8 percent, real estate to 1.3 percent from 3.1 percent, and other services to 1.4 percent from 2.9 percent.
‘Considering prevailing expectations near-term regarding commodity prices and borrowing costs, these trends can be expected to persist throughout the near-term,’ it noted.
Agriculture could provide some support, but the CPBRD cautioned that its recent improvement may be difficult to sustain as weather disturbances and rising input costs threaten to weigh on farm output in the succeeding quarters.
Compounding these pressures are high borrowing costs, which could further weaken household borrowing and private investment and delay a recovery in demand, according to the think tank.
The CPBRD also warned that rising interest rates in developed economies could push Philippine rates higher, further squeezing private investment.
‘As private demand is already flagging from persistently high inflation, further declines in the appetite for both consumption and investment would push the economy deeper into the doldrums.’