American financial giant Goldman Sachs Group Inc. has soured on the Philippine economic outlook, slashing its growth forecasts after a disappointing end to 2025 signaled deeper structural issues in public investment and government spending.

The New York-based lender lowered its 2026 gross domestic product (GDP) growth projection to five percent from an earlier estimate of 5.3 percent, placing it at the bottom of the government’s recently downgraded target range of five to six percent.

In a commentary published last week, a copy of which was obtained by Manila Bulletin, Goldman Sachs Economics Research analysts said the revision reflects a “weaker-than-expected” GDP print for the fourth quarter of 2025 and a persistently “soft outlook” for state-led investment.

Economic output in the fourth quarter slowed sharply to three percent, well below the government’s minimum target of 5.5 percent and weaker than Goldman Sachs’ earlier forecast of 3.6 percent. The lender had previously expected faster full-year growth of 4.6 percent.

Notably, Goldman Sachs’ revised forecast brought its full-year outlook closer to the actual 4.4-percent outturn, though still slightly more optimistic. It said the economy was weighed down by a fiscal squeeze and subdued production activity.

Infrastructure spending plunged in November 2025 as the Marcos Jr. administration curtailed funding releases for public works projects amid an intensifying crackdown on corruption linked to flood-control programs.

Goldman Sachs said investment remained the main drag on growth, posting consecutive contractions in the second half of 2025. The steepest decline came from public construction, which fell 18.5 percent due to project delays and execution bottlenecks stemming from heightened scrutiny related to the flood-control controversy.

“This construction softness may persist, as [former] Finance Secretary Ralph G. Recto has cautioned that the anti-corruption push could slow infrastructure rollout,” Goldman Sachs said.

The lender’s downgraded outlook aligns with the government’s revised growth assumptions for 2026, now set at five to six percent, and for 2027, lowered to 5.5 to 6.5 percent. The government last year set an annual growth target of six to seven percent for 2026 to 2028.

Bangko Sentral ng Pilipinas (BSP) Governor Eli M. Remolona Jr. said the central bank is revisiting its earlier, more optimistic growth assumptions for 2026 after the fourth-quarter GDP print turned out “worse” than expected.

Department of Economy, Planning, and Development (DEPDev) Secretary Arsenio M. Balisacan also admitted that the severity of the slowdown caught the government off guard. Beyond the impact of recent typhoons and flooding, he said the flood-control issue also hurt economic momentum.

“Admittedly, the flood-control corruption scandal also weighed on business and consumer confidence,” the country’s socioeconomic planner said.

Remolona, meanwhile, reiterated his view that growth could recover by the second half of 2026 on the back of improving business and investor confidence.

Still, Goldman Sachs penciled in another 25-basis-point (bp) rate cut that the BSP could deliver at its upcoming policy meeting on Feb. 19. If implemented, this would bring the policy rate down to 4.25 percent from the current 4.5 percent.

“The risks are skewed toward additional easing if growth does not pick up materially,” Goldman Sachs said.