Ayala-led Bank of the Philippine Islands (BPI) lowered its growth forecast for the Philippine economy, warning that the government must pivot from its reliance on private consumption toward more productive public investment to avert prolonged slowdown.

The lender now expects gross domestic product (GDP) to expand 5.1 percent this year, down from a previous estimate of 5.5 percent.

While a recovery is possible in 2026, the trajectory will depend heavily on the quality of fiscal interventions rather than the sheer volume of outlays, BPI lead economist Emilio Neri Jr. said in a commentary on Wednesday, Feb. 4.

“It’s not simply a matter of the government increasing its spending. The quality of spending will be critical in restoring confidence and ensuring that public investment translates into productive capacity,” Neri said.

This was Neri’s sentiment, as GDP outturn in the fourth quarter of 2025 came in weaker than the market had expected, at three percent. This pace shocked policymakers and revived the Philippines’ “sick man of Asia” status.

Economic growth averaged 4.4 percent in 2025, well below the government’s 5.5 percent minimum target. Neri attributed this to poor-quality public spending.

He stressed that the anemic fourth-quarter performance stemmed from diminished private-sector confidence, driven largely by questionable governance and a lack of accountability.

Neri lamented that the sharp slowdown would likely not have been as severe “if the economy had other strong engines of expansion beyond consumption.”

“Even with the sharp decline in government construction spending, growth might have been more acceptable if the production sectors had been in a stronger position to offset the drag,” Neri said.

Excluding the pandemic years, the economy in 2025 recorded its weakest performance since 2011, echoing the early years of former President Benigno S. Aquino III, when tight fiscal spending under an anti-corruption drive weighed on growth.

“Economic momentum was severely impacted by a massive drop in public works,” Neri said.

Based on his calculation, the government’s spending slump in the fourth quarter of 2024 shaved off 2.2 percentage points (ppt) from the GDP print. This means that, if not for the fiscal constraints, the economy could have grown by 5.2 percent during the quarter—still short of the minimum target.

For the local economic recovery, Neri asserted that the country “cannot remain overly reliant on a narrow set of growth drivers such as consumption and government spending.”

“Even if public expenditure normalizes in 2026, the underlying vulnerability will persist unless the country broadens its sources of growth. A more diversified economy would be better equipped to absorb future crises and shocks,” he added.

Production sectors—such as agriculture, manufacturing, and construction—should be strengthened to boost productive capacity.

Salceda Research chair Joey S. Salceda said the Tatak Pinoy Act is less about branding and more about strengthening the country’s productive capacity, noting that the law aims to scale production so Filipino brands can compete, rather than simply promote them.

This legislation is a comprehensive manufacturing strategy that moves beyond branding to build productive capacity and revitalize the industrial backbone through fiscal incentives and strategic directed credit.

Federation of Philippine Industries (FPI) Chairperson Elizabeth Lee earlier warned that without a robust industrial base, the economy could become overly reliant on services, limiting job creation and weakening its global competitiveness.

“Services alone cannot carry the Philippine economy. Industry must be revitalized to ensure resilience, competitiveness, and inclusive growth,” Lee said.