Philippine economic growth could return to above four percent by the fourth quarter of 2026 as a rebound in government infrastructure spending, softer crude oil prices, and improving demand conditions offset a likely weak third quarter, according to economists from the University of Asia and the Pacific (UA&P).

In its “The Market Call: Capital Markets Research” report for August 2026 released last Monday, Aug. 31, UA&P’s Business Economics Club (BEC) said gross domestic product (GDP) growth may only pick up by the fourth quarter and into 2027, with the economy drawing support from record employment, strong exports, and overseas Filipino worker (OFW) remittances.

“While near-term headwinds such as elevated global yields, trade deficits, and oil volatility weigh on the peso and local bonds, solid fundamentals pave the way for economic growth to top four percent in the fourth quarter,” the report said.

UA&P expects third-quarter GDP growth to remain tepid, performing much like the post-pandemic low of 2.3 percent recorded in the second quarter amid the fallout from August flooding and delayed infrastructure spending.

However, a “huge rebound” in infrastructure spending in the fourth quarter, alongside softer crude oil prices and better demand conditions, is expected to bring the economy back to an above-four-percent growth path.

Manufacturing activity is also expected to remain in expansion territory, supported by a rebound in domestic demand in the second half and robust electronics backlogs.

The projected recovery would build on what UA&P described as economic “green shoots” that emerged despite weak second-quarter growth.

Employment reached a record 50.66 million in June, up by 1.03 million from May, while merchandise exports surged by 24.1 percent year-on-year to an all-time high of $8.77 billion.

Personal remittances from OFWs, meanwhile, reached $3.39 billion in June, the highest monthly level recorded so far in 2026, although their year-on-year growth slowed to 1.8 percent.

These gains provide a solid baseline that could help the economy absorb the temporary slowdown in the third quarter caused by flooding and delays in government spending, UA&P said.

Still, UA&P flagged several risks that could complicate the recovery, particularly lingering inflationary pressures, geopolitical tensions, weak investment, elevated borrowing costs, slower credit growth, and weather-related disruptions.

The Middle East conflict has fueled inflationary pressures and disrupted labor and remittance flows. In July, inflation for housing, water, electricity, gas, and other fuels accelerated to 8.2 percent year-on-year amid renewed Middle East tensions and utility adjustments.

The fallout from the flood control corruption scandal has also weighed heavily on investment. Gross capital formation contracted by 9.2 percent year-on-year in the second quarter, while fixed investment plunged by 13.7 percent amid continued declines in public construction.

Household consumption growth likewise softened to 2.8 percent in the second quarter from three percent in the first quarter as elevated inflation, high borrowing costs, and softer remittance flows dampened consumer appetite.

Meanwhile, the Bangko Sentral ng Pilipinas’ (BSP) tightening cycle has started to weigh on credit conditions, with businesses and households becoming more cautious about taking on new debt.

Bank lending growth eased to a four-month low of 9.8 percent year-on-year in June from 12.1 percent in May, while consumer loan growth slowed to 17.8 percent from 19 percent.

Despite these pressures, softer inflation and weak economic growth could temper further monetary tightening after the BSP raised its policy rate by 25 basis points (bps) to five percent in August.

The report said cooling inflation could limit the BSP to “just one more 25-bp rate hike for the year,” while its fixed-income outlook said milder inflation readings and the weak second-quarter GDP print may temper the central bank’s next moves.

Headline inflation eased to 6.2 percent in July from 6.4 percent in June, although the seven-month average remained elevated at five percent. UA&P warned that upside risks remain material, including uncertainty surrounding the Middle East conflict, agricultural damage from heavy rainfall, a potentially aggressive dry season, and minimum wage adjustments.

On the financial markets, the Philippine Stock Exchange index (PSEi) advanced by 3.3 percent month-on-month to 6,236.44 at end-July, as slower inflation and supportive early-month flows encouraged investors to build positions. Mining and oil led sectoral gains with a 21.8-percent increase, while the industrial sector declined by 3.3 percent.

The report said the combination of record employment, strong exports, continued creditworthiness, and robust remittances should help shield the economy from temporary third-quarter disruptions as infrastructure spending recovers toward year-end. - Danielle T. Bayani