Housing construction, which sharply slowed in the second quarter and pulled gross domestic product (GDP) growth toward the lower end of the government’s target, will likely recover only if the Bangko Sentral ng Pilipinas (BSP) delivers a jumbo rate cut on Thursday.

While the University of Asia and the Pacific (UA&P) expects infrastructure activity to pick up in the second half of the year, the residential construction sector is still seen struggling with challenges from elevated interest rates.

“Residential construction will remain subdued due to the elevated policy and interest rates, unless BSP increases its rate cut to 50 bps in its August 28th meeting from the widely expected 25 bps [basis points] rate cut,” UA&P senior economist Victor Abola and research assistant Marco Antonio Agonia said in a the latest edition of The Market Call published last week.

To note, the consensus expectation of private sector economists lean toward a 25 bps cut on Aug. 28, anchored on the BSP’s more dovish stance after delivering a quarter-point cut in June to 5.25 percent.

Data from the Philippine Statistics Authority (PSA) showed that gross capital formation, as among the country’s major expenditure items, expanded by 0.6 percent in the second quarter of 2025, far slower than the 11.5-percent growth in the same period last year.

Construction, in particular, expanded by two percent during the period, a sharp slowdown from the 15.9 percent expansion a year earlier.

Meanwhile, Abola and Agonia expect the local economy to weather the impact of higher tariffs that United States (US) President Donald Trump slapped on Philippine exports, with GDP growth seen to accelerate 5.8 percent, faster than the 5.5-percent growth in the previous quarter.

Abola and Agonia also attributed their more optimistic outlook to “milder typhoon season” and a low base in 2024.

“Less destructive typhoons and monsoon rains coupled with below-target inflation average of 1.2 percent in the third quarter should further boost consumer spending, even as infrastructure works accelerate,” Abola and Agonia said.

According to the PSA, household consumption accelerated by 5.5 percent in the April-to-June period, faster than its 4.8-percent growth a year earlier.

Meanwhile, Budget Secretary Amenah F. Pangandaman, who also expects growth in the third quarter of 2025 to outperform the previous quarter’s, banks on government spending to propel growth to the midpoint of the target.

Pangandaman, who also co-chairs the Cabinet-level, interagency DBCC, said she expects the country’s GDP to expand by around six percent, citing the resumption of notices of cash allocation (NCAs) after the spending ban during the midterm election season.

She added that economic growth for the rest of the year will continue to be driven by government spending and rising investments, supporting her full-year growth forecast of close to six percent.