Department of Finance (DOF) Secretary Ralph Recto on Tuesday, Oct. 14, said the Philippine economy may experience a temporary slowdown in the latter half of 2025 due to ongoing government reforms meant to ensure proper spending of taxpayers’ money, but he expressed optimism that growth will rebound strongly by 2026.

During the finance subcommittee hearing on the Department of Finance’s (DOF) proposed 2026 budget, Senator Sherwin Gatchalian asked Recto to identify the main internal and external headwinds that could affect the government’s revenue performance next year.

Recto said that domestically, reforms introduced by President Marcos to promote efficient and transparent budget execution could initially cause delays in government disbursements.

“Posible magkaroon ng slowdown in growth etong 3rd quarter because of all the reforms being initiated by our President na siguraduhin na magastos nang tama ang taxpayers' money in executing the budget as well,” Recto said.

He noted that slower government spending could temporarily weigh on the economy.

“'Pag nagslow down ang gobyerno sa paggastos, posibleng tamaan yung ekonomiya natin dito a bit. So posible 3rd quarter, 4th quarter magkaroon ng kaunting slowdown (When the government slows down its spending, our economy could be affected a bit. So it’s possible that in the third or fourth quarter, there will be a slight slowdown),” he said, adding that the impact could extend to early next year.

Recto, however, emphasized that the slowdown will be short-lived and will ultimately lead to stronger growth once fiscal reforms are in place.

“The good news is that, moving forward lahat yan upside na kasi maaayos natin yung problema (it’s all upside because we will be able to fix the problems). So moving forward you will realize your full potential of growth,” he said.

“Meaning to say, pupwede (it's possible) based on our demographic data, we have a stable macroeconomic environment; the economy can easily grow anywhere from six to seven percent. Siguraduhin lang natin (We wil make sure) that we execute the budget properly at magagastos natin ng tama ang pondo ng taumbayan (and spend the people’s money the right way),” he added.

Recto also cited external factors such as geopolitical tensions and global trade disruptions as continuing risks to the economy.

“Externally maraming (there's a lot of) unpredictability. Well, one, geopolitical tension, yung problema natin sa (our problem with) China, yung problema ng US sa China (the problem of US with China),” he said, referring to recent statements by former US President Donald Trump on imposing a 100 percent tariff on Chinese goods.

“Anong ibig sabihin ng 100 percent tariff on China? Ibig sabihin there's no trade between US and China, titigil lahat yan...And because of that we have the two biggest economy having a trade war edi liliit yung global trade (What does a 100 percent tariff on China mean? It means there will be no trade between the U.S. and China — everything will stop. And because of that, with the two biggest economies engaged in a trade war, global trade will shrink),” he added.

He warned that such tensions could impact the Philippines’ external sector.

“Mababawasan yung export natin halimbawa sa ((Our exports will decrease for example in) America among others no. So these are the challenges—the geopolitical tensions, the trade war,” Recto said, also citing the continuing Russia-Ukraine conflict as an external headwind.

Gatchalian, meanwhile, pointed out that corruption-related reforms within the Department of Public Works and Highways (DPWH) could also have an indirect effect on revenue collection.

“Yung (The) internal because of the corrupt, what's happening with the DPWH in particular the corruption issue, ang fear ko kasi (my fear is) because of the reforms being undertaken, but the reforms will obviously have an effect on spending,” Gatchalian said.

He cited as an example the suspension of road reblocking projects.

“Nabasa ko yung pinahold lahat ng mga reblocking which is tama naman…but obviously nung hininto yan kapag hininto nationwide, walang contractor na gagawa nun…hindi sila magbabayad ng income tax, hindi sila bibili ng mga materials, walang VAT, so magkakaroon ng slowdown in terms of revenue collection (I read that all reblocking projects were put on hold, which is the right thing to do… but obviously, when that was stopped — if it’s halted nationwide — there will be no contractors working on them. They won’t be paying income taxes, they won’t be buying materials, there will be no VAT, so there will be a slowdown in terms of revenue collection),” he said.

Gatchalian warned that delays in infrastructure spending could amount to P400 billion to P500 billion in postponed disbursements, affecting the government’s revenue performance.

“That’s why corruption—itong (this) issue on corruption—may effect talaga sa (there's really an effect on) government operations because of the reforms that we are undertaking,” he said.