Amid a deepening corruption scandal ensnaring the Marcos Jr. administration, a series of mass protests against the government could further weaken the economy, according to London-based think tank Capital Economics.

In the Philippines, “unrest could further dampen economic activity, which is already suffering after the government halted public infrastructure works on the back of the corruption allegations,” Capital Economics deputy chief emerging markets (EMs) economist Jason Tuvey said in a Nov. 21 report.

The think tank noted that the flood control corruption scandal contributed to the sharp slowdown in third-quarter gross domestic product (GDP) growth, which fell to just four percent year-on-year, marking a 4.5-year low.

The latest Department of Budget and Management (DBM) data released over the weekend showed that infrastructure spending plunged by 30.7 percent to ₱256.9 billion in the third quarter from ₱370.6 billion in the same period last year. Infrastructure disbursements from July to September—when flood control corruption came to light—were also 32.9-percent lower than the ₱382.6-billion spending planned for the three-month period.

As such, Capital Economics projected Philippine GDP growth to drop to 4.6 percent this year and next year, below last year’s 5.7-percent expansion as well as the government’s target range of 5.5 to 6.5 percent.

The think tank noted that the corruption scandal escalated last week, with former executive secretary Lucas Bersamin and former Department of Budget and Management (DBM) secretary Amenah F. Pangandaman resigning over their offices’ links to alleged flood control irregularities and national budget insertions, respectively.

The President subsequently appointed former Department of Finance (DOF) Secretary Ralph G. Recto as the new Executive Secretary, replacing Bersamin. Former Special Assistant to the President for Investment and Economic Affairs (SAPIEA) Frederick D. Go assumed the role of DOF chief.

Capital Economics warned that deepening corruption issues “raise the risk of public anger spilling out into protests and social unrest,” noting that the influential sect Iglesia ni Cristo (INC) staged demonstrations early last week, while a nationwide “Trillion Peso March” has been set for Nov. 30.

The think tank also highlighted potential economic consequences, warning that the Philippine peso could face renewed downward pressure due to the country’s sizable current account deficit and its increased reliance on more volatile forms of foreign capital.

However, the Bangko Sentral ng Pilipinas (BSP) retains significant room to intervene and stabilize the peso, with foreign exchange (forex) reserves remaining substantial at nearly $110 billion, the think tank added.

With inflation subdued—headline inflation was at 1.7 percent year-on-year last October—the think tank said that any currency pressures are unlikely to stop the BSP from implementing further interest rate cuts to help bolster the economy.

Capital Economics forecast headline inflation to average 1.6 percent in 2025, below the government’s two- to four-percent target band of manageable annual price increases deemed conducive to economic growth.

Despite Capital Economics’ gloomier outlook, the country’s chief economist last week assured that the Philippine economy remains “strong” despite recent domestic challenges and global uncertainties.

“Our sound macroeconomic fundamentals—sustained growth, easing inflation, a healthy labor market, a manageable fiscal deficit and public debt, a broadly stable currency and external position, and a robust banking system—continue to anchor our resilience,” Department of Economy, Planning, and Development (DEPDev) Secretary Arsenio M. Balisacan had said.

For Balisacan, the economy is expected to regain momentum, noting that the government is taking steps to recover lost ground. The DEPDev chief believes that these efforts should be reflected in the fourth-quarter GDP performance.

“I would expect that the fourth-quarter performance will be better than the third quarter and that will enable us at least to hit the fives,” or five-percent growth level, according to Balisacan.

Balisacan had already conceded that reaching the upper end of the 2025 growth target range appears unlikely, as achieving the lower end of 5.5 percent would already require the economy to expand by around 6.8 to 6.9 percent in the fourth quarter—a challenging feat given the current and lingering economic shocks.

“If we can get at least to the five [percent], that would be a very good achievement, given the shocks that were not anticipated,” according to the DEPDev chief.

(Ricardo M. Austria)