Japanese investment and brokerage giant Nomura has projected Philippine economic growth to slump further in the fourth quarter after steeply slowing to a 4.5-year low in the third quarter, weakened by alleged corruption in flood control funds.

“We reiterate our 2025 gross domestic product (GDP) growth forecast of 4.7 percent, penciling in a sub-four-percent reading in the fourth quarter, as fiscal tightening will likely continue as a result of the ongoing graft controversy,” Nomura said in a Nov. 10 commentary.

Nomura Asia economists Euben Paracuelles and Yiru Chen said the drag from the corruption scandal felt in the previous quarter “is just the start, with fiscal spending likely to worsen in the next three to four months.”

While public infrastructure spending “slumped” during the third quarter—which had the heaviest weight on the slowdown—Nomura said its “spillovers on household spending were also significant.”

Despite easing inflation and improving consumer purchasing power, household spending expansion slowed sharply to four percent in the third quarter from 5.5 percent in the previous quarter.

This was mainly driven by weaker spending on discretionary consumer items such as household furnishings, passenger transport, recreation, and restaurants and hotels.

“We estimate the output gap has widened substantially,” Nomura said. This refers to the difference between actual GDP growth and its potential expansion.

As such, Nomura expects the Bangko Sentral ng Pilipinas (BSP) to continue easing the key borrowing cost by 25 basis points (bps) in the year’s last monetary policy meeting in December, bringing the current rate down to 4.5 percent.

“The BSP has already taken a more preemptive approach against emerging downside risks to the growth outlook from the corruption controversy,” Nomura said.

Reducing the key borrowing cost would buoy private consumption and lending activities, which, in turn, would support economic expansion, it added.

Beyond the expected quarter-point cut in December, Nomura sees another easing in the first quarter of 2026, with the Japanese bank saying there is a risk the central bank “could deliver more” reductions next year “if the more ‘severe scenario’ materializes, including a delay in the enactment of the 2026 budget and/or a slow resolution to the scandal.”

Besides the downbeat outlook on growth, Nomura also cited the still-tame inflation in October as a reinforcing factor for another rate easing. Inflation steadied at 1.7 percent last month, which also emerged as the year-to-date average.

Nomura forecasts inflation to average 2.8 percent in 2026, which, if realized, would come in below the central bank’s forecast of 3.1 percent and well within the government’s target band of two to four percent.