Foreign banking giants have forecast that flood control scandals, which were a major red flag for investors, caused economic growth to slow “sharply” in the third quarter of the year, prompting the government to spend infrastructure funds cautiously.

Singapore-based DBS Bank Ltd. and United Overseas Bank (UOB) expect gross domestic product (GDP) growth to have slowed to 5.2 percent during the July–September period from 5.5 percent in the April–June period, well below the lowered growth goal of 5.5 percent to 6.5 percent.

“We expect the Philippines’ economy to have slowed down in the third quarter of 2025 on the back of political uncertainties (flood control project corruption allegations) and typhoons, which are expected to have hurt sentiments and delayed fresh investment spending,” DBS said in a commentary published last Friday.

Dutch financial giant ING believes the slowdown could be steeper than UOB and DBS’ expectations.

“We expect third-quarter Philippine GDP growth to slow sharply to 5.1 percent, primarily due to a significant decline in government spending. This follows corruption scandals associated with flood control projects,” said Deepali Bhargava, regional head of research at ING Asia-Pacific.

Apart from business sentiment, local developments in the third quarter were worsened by uncertainties surrounding the United States (US) trade policies with its trade partners. Tariffs imposed on Philippine exports were set at 19 percent.

Meanwhile, DBS said the recent reductions in key borrowing costs and the still-tame movements in consumer prices may have encouraged private consumption during the quarter ending in September.

It expects inflation to have risen to 1.8 percent in October, slightly higher than the 1.7 percent rate in August. For the entire year, it sees inflation averaging 1.7 percent, rising further to 2.5 percent in 2026.

DBS also said trade “held ground on frontloading of demand as well as supportive electronics exports.”

Think tank Capital Economics, which believes growth may have continued at a “steady pace” in the third quarter, cited a pickup in domestic demand, bucking the modest drag from both exports and money sent from abroad.

“Both retail sales and capital goods import growth accelerated in the third quarter, pointing to a better performance for consumer spending and investment,” Capital Economics Chief Emerging Markets Economist Jason Tuvey and Senior Asia Economist Gareth Leather said.

They also expect inflation to settle at 1.6 percent this year, but project consumer price hikes to rise to 2.5 percent in 2026 and 3 percent in 2027.

“Steady interest rate cuts from the central bank will have been a key factor supporting consumption,” they said, but they are tilted toward a less dovish outlook as they see the Bangko Sentral ng Pilipinas (BSP) keeping the current 4.75 percent policy rate until end-2025.

Capital Economics expects the BSP to resume easing to 4.5 percent in the first quarter of next year, which it also sees to be the terminal rate. Since the easing cycle was kicked off in August last year, the BSP has so far reduced policy rates by a cumulative 175 bps.

More dovish than Capital Economics, DBS believes the BSP will carry out another 25-basis-point (bp) reduction in key interest rates by year-end, bringing the rate down to 4.5 percent. It expects this rate to be slashed further to 4.25 percent in 2025.

Despite flagging the flood control fiasco, DBS remains upbeat on output growth accelerating by 5.6 percent for the entire year, an inch higher than the lower end of the goal. It, however, sees this easing to 5.5 percent next year, falling short of the six- to seven-percent goal.

The Philippine Statistics Authority (PSA) is set to release its third-quarter GDP report on Friday, Nov. 7.