Postpandemic low: Q2 GDP grew by just 2.3%

MANILA, Philippines — The Philippine economy remained sluggish in the second quarter as the Middle East war peaked and government spending stayed weak.

Gross domestic product (GDP) grew by just 2.3 percent in the second quarter, slowing further from the 2.8-percent growth in the previous quarter and the 5.4-percent expansion posted a year earlier.

READ: Poll: Q2 PH growth likely slowed to 2.7%

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The latest data from the Philippine Statistics Authority marked the country’s weakest quarterly economic growth in 16 years outside the pandemic, when the economy had expanded by 1.8 percent in the fourth quarter of 2009.

Averaging just 2.6 percent in the first half, GDP growth fell further behind the Marcos administration’s already downgraded full-year target of 3.5 to 4.5 percent. The figure also fell short of the 2.7-percent median growth estimate of 14 economists polled by the Inquirer.

So far, the Philippines is the slowest-growing economy in Southeast Asia, trailing Vietnam’s 8.4 percent, Malaysia’s 5.8 percent and Indonesia’s 5.3 percent.

“What we are experiencing right now, I believe, is transitory. It’s temporary. We are making efforts to get back to the high-growth trajectory,” Economic Planning Secretary Arsenio Balisacan said.

“The developments in the Middle East came at a time when we were still recovering from domestic challenges, particularly the infrastructure scandal from last year. I would like to think these are short-term phenomena,” he added.

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This extended the country’s prolonged slowdown that had begun in the third quarter of 2025.

Further, combined with the national government’s outstanding debt of P19.07 trillion as of end-June, the weak print pushed the debt-to-GDP ratio to a 22-year high of 66 percent.

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Slow growth factors

Household consumption grew by just 2.8 percent during the quarter, slowing sharply from 5.2 percent a year earlier. Outside the pandemic, this was the weakest pace since the third quarter of 2010, when household spending expanded by 2.6 percent.

War-driven inflation, which peaked at a three-year high of 7.2 percent in April, eroded consumers’ purchasing power and weighed on domestic demand. Weaker employment and slower remittance growth also dragged down consumer spending.

Government spending also lost momentum, growing by 8.3 percent from 8.7 percent a year earlier.

READ: Gov’t releases 90% of budget; DPWH spending rebounds

Gross capital formation contracted by 9.2 percent, reversing the 0.9-percent growth last year. Government construction plunged 32.4 percent, indicating that infrastructure activity has yet to recover from the graft scandal.

On the production side, agriculture grew by 2.7 percent, slowing from 7 percent a year ago. Industry shrunk by 2.4 percent, a reversal from a 2.1-percent growth, while services grew by 4.5 percent, easing from 6.9 percent.

One bright spot was external trade. Exports grew by 12.2 percent, accelerating from 4.9 percent a year ago, while imports grew by 5.5 percent from 3.6 percent.

Looking ahead, Balisacan said the economy would need to grow by at least 4.4 percent in the second half to meet even the lower end of the government’s full-year target.

He said growth would be supported by a rebound in public spending as funds for infrastructure projects had already been released after the second quarter.

“What was not spent in the previous quarters will still be spent. You can imagine the amount of resources that will go into the third and fourth quarters and even into the succeeding quarters next year. There’s a lot of buffer there for growth,” Balisacan said.

“We remain mindful of the risks ahead. Uncertainty surrounding the Middle East conflict, elevated oil prices, tighter financial conditions and the prospect of El Niño and further typhoons could weigh on the recovery,” he added. INQ