Australia and New Zealand Banking Group (ANZ) said the Philippine economy could be revitalized if the government reverses the contraction in government spending.

However, ANZ believes the drag from tighter infrastructure spending likely pulled growth below target in the fourth quarter of 2025 and is expected to continue choking output growth in the first half of 2026.

If realized, this would follow the third-quarter growth of four percent—the weakest in four and a half years. Still, such an expansion rate would fall short of the retained 5.5- to 6.5-percent GDP growth goal for the year.

“Domestic activity likely slowed down further, reflected in declining car sales and consumer goods import numbers,” Sanjay Mathur, ANZ chief economist for Southeast Asia and India, wrote in a Jan. 23 commentary.

“Government spending slowed further over the quarter and will continue to constrain growth in the first half of 2026,” Mathur added.

He said an economic slowdown has been observed domestically “as repercussions from governance-related issues in public infrastructure projects have not receded.” Weak public spending, especially on capital projects, has spilled over to households and businesses, dampening confidence in both sectors.

Public infrastructure spending plunged by two-fifths to ₱65.9 billion in October 2025 from ₱110 billion in October 2024 due to persistent delays in project payments stemming from a continued squeeze on public infrastructure spending.

It bears noting that the Department of Budget and Management (DBM) attributed the spending drop to reduced disbursements at the controversial Department of Public Works and Highways (DPWH), following the start of a flood-control corruption probe in September.

Mathur noted that more downbeat consumer expectations—lower than pre-pandemic levels—and fewer businesses expanding during the period were likely reflected in the weaker fourth-quarter 2025 GDP print.

Fourth-quarter 2025 and full-year 2025 gross domestic product (GDP) figures are scheduled to be released on Jan. 29, 2026.

It appears that the fourth quarter does not bring a promise of a spending rebound on the infrastructure front amid the government’s redemption efforts by committing to tackling graft issues and improving both the probe and validation of existing flood-control projects.

“Lower infrastructure spending is expected to continue to weigh on overall government disbursements for the rest of the quarter while the Department of Public Works and Highways (DPWH) boosts its efforts to address corruption issues, ramp up ongoing investigations and validations, and resume construction activities,” read the October disbursement report of the Department of Budget and Management (DBM).

On a brighter note, Mathur believes the drag from net exports will “likely” ease on the back of resilient export performance, expected to make a larger contribution to output expansion during the quarter.

For the lender, weak overall growth and soft domestic demand point to a final quarter-point rate cut by the Bangko Sentral ng Pilipinas (BSP) to 4.25 percent—the impact of which could be limited by low confidence.