Amid both external and domestic challenges, the Philippines’ economic growth weakened further to a new post-pandemic low of 2.3 percent in the second quarter of 2026, the Philippine Statistics Authority (PSA) reported on Friday, Aug. 7.

Gross domestic product (GDP) growth slowed from 2.8 percent in the first quarter and 5.4 percent in the second quarter of 2025.

Department of Economy, Planning, and Development (DEPDev) Secretary Arsenio M. Balisacan said the country’s GDP needs to grow by 4.4 percent in the second half of the year to achieve the lower end of the government’s downgraded growth target of 3.5 to 4.5 percent for 2026.

Despite the weaker economic performance, Balisacan dismissed concerns that the country is at risk of stagflation—a period characterized by sluggish economic growth, elevated inflation, and rising unemployment.

“I don’t think so. We are seeing now some positive developments moving us out of the situation of the low growth. I think the key factor here is our ability to move public investments because we see and we notice that private investment is also very sensitive to public investments,” said Balisacan, the country’s chief economist. 

“As we are able to get public investments, we would expect the private-sector response also to improve and further boost the confidence that the private sector has in the economy,” the DEPDev chief added.

Balisacan said domestic demand remained subdued as investments continued to contract due to weaker public construction, while household spending also slowed amid higher inflation, job losses, and lower remittance receipts resulting from the Middle East conflict.

Still, he pointed to several areas of strength, including the recovery in agricultural output, stronger manufacturing activity, and improving exports, particularly semiconductor shipments supported by global demand for artificial intelligence (AI)-related products.

The PSA reported that wholesale and retail trade, education, and manufacturing were the largest contributors to second-quarter GDP growth. Among the major sectors, services expanded by 4.5 percent, agriculture, forestry, and fishing grew by 2.7 percent, while industry contracted by 2.4 percent.

On the expenditure side, household final consumption expenditure increased by 2.8 percent, government final consumption expenditure rose by 8.3 percent, exports of goods and services climbed by 12.2 percent, and imports of goods and services grew by 5.5 percent. Gross capital formation, however, declined by 9.2 percent.

Balisacan attributed the contraction in industry largely to the decline in public construction, saying implementing agencies had exercised greater caution while governance reforms were being put in place but were beginning to regain confidence as infrastructure projects moved forward after last year’s multibillion-peso flood-control corruption scandal.

“We are now seeing that contracts have started to be issued by the Department of Public Works and Highways (DPWH) starting in June and July, and we expect those to accelerate in the coming months,” he said, noting that the Department of Budget and Management (DBM) has already released mobilization funds for infrastructure projects.

To support a stronger recovery in the second half, Balisacan said the government will accelerate the implementation of high-impact infrastructure projects, protect purchasing power through the Unified Package for Livelihoods, Industry, Food, and Transport (UPLIFT) Framework, strengthen food and energy security, boost export competitiveness through new free trade agreements (FTAs) and by seeking reconsideration of the United States’ (US) 12.5-percent tariffs on selected Philippine exports, and position Philippine firms and workers to benefit from rising global AI demand through workforce upskilling and the resumption of new Philippine Economic Zone Authority (PEZA) information technology (IT) ecozone accreditations in Metro Manila.

He added that the government remains mindful of risks, including the Middle East conflict, elevated oil prices, tighter financial conditions, El Niño, and further typhoons, but said improving business confidence, stronger exports, and the expected pickup in infrastructure spending suggest the foundations for a recovery are beginning to take shape. - Danielle T. Bayani