By Lourdes O. Pilar, Researcher
THE Philippine economy likely lost momentum in the first quarter, weighed down by weak household purchasing power, subdued government spending, fragile business confidence, and rising global energy prices linked to the Middle East conflict, economists said.
Philippine gross domestic product (GDP) likely grew by 3.4% in the January to March period, according to a median forecast of 21 economists and analysts polled by BusinessWorld.
If realized, this would be slower than the revised 5.4% expansion recorded in the first quarter of 2025, and fall short of the government’s 5%-6% target for this year.
However, it would be a tad faster than the 3% growth in the fourth quarter of 2025.
The Philippine Statistics Authority is scheduled to release first quarter GDP data on May 7.
“Household consumption [is] slated to moderate as consumers work to manage debt and deal with higher energy costs,” Nicholas Antonio T. Mapa, chief economist at the Metropolitan Bank & Trust Co., said in an e-mail.
Mr. Mapa, who sees 3.4% GDP growth for the first quarter, said government spending is also expected to fall short, based on the latest disbursement figures, alongside capital formation, which continues to feel the impact of the monetary policy tightening carried out in 2022 to 2024.
“We had begun to see a modest pickup to start the year, but this likely faded in March due to the heightened risk off tone,” Mr. Mapa said, adding that tight monetary conditions continue to weigh on growth.
Azril Rosli, an economist at Maybank Investment Bank, said he sees 4.5% GDP expansion in the first quarter, in line with underlying domestic demand but also reflects pressure from rising inflation and global uncertainty.
“The estimate reflects a balance between still-resilient domestic demand supported by government spending and services activity and early headwinds from higher inflation, which is beginning to erode household purchasing power. Investment remains steady but cautious, while external demand is broadly stable,” Mr. Rosli said in an e-mail.
In the fourth quarter of 2025, household consumption, which accounts for more than 70% of GDP, grew by 3.8% — the weakest pace since the 4.8% contraction recorded in the first quarter of 2021.
Government final consumption expenditure, which made up 12% of the GDP, grew by 0.7% in the fourth quarter, slower than the 5.8% in the third quarter and the 9.5% expansion in the last three months of 2024.
On the other hand, the country’s gross capital formation, the investment component of the economy, fell by 9.4% in the last three months of 2025, steeper than the 2% decline in the third quarter and a reversal from the 5.8% growth in the fourth quarter of 2024.
Capital outlays made up nearly 20% of the country’s GDP in the fourth quarter.
Marco Antonio C. Agonia, an economist at the University of Asia and the Pacific, said GDP likely grew by 3.1% year on year due to the “lingering impacts from the loss in confidence from the flood control scandal and mounting economic headwinds from the Middle East war.”
“National Government underspending in the first quarter will likely dent growth performance, especially compared against last year’s frontloaded infrastructure spending pattern. Consumer spending will be accordingly subdued, lacking multiplier effects from government spending,” he said in an e-mail.
MIDDLE EAST IMPACT?
Domini S. Velasquez, chief economist at China Banking Corp., said that Philippine GDP growth likely expanded by 3.3% in the first quarter, primarily due to the global energy shock arising from conflict in the Middle East.
“On the production side, services activity slowed, particularly in the transport sector, as households and firms adjusted behavior in response to surging fuel prices. These adjustments included wider adoption of work-from-home arrangements, reduced operations among public utility vehicles, and flight cancellations,” she said.
The US-Israel war on Iran, which began on Feb. 28, has disrupted global oil supplies and drove crude oil prices up by around 50%.
The Philippines is a net importer of crude oil and sources most of its supply from the Middle East, the world’s biggest oil-producing region.
Philippine National Bank Economist Alvin Joseph A. Arogo said that GDP growth remained sluggish mainly due to the “weak consumer and business confidence due to the lingering impact of the corruption probe and the conflict in the Middle East.”
Miguel Chanco, chief emerging Asia economist at Pantheon Macroeconomics, said that while he sees 3.8% GDP growth in the first quarter, this does not yet reflect the impact of the oil crisis.
“It’ll be some time before the economic indicators will ‘feel’ the energy price crisis caused by the war in the Middle East. It certainly won’t be a major factor in the Q1 GDP numbers. Nevertheless, the main squeeze it is likely to cause from Q2 and beyond is on already-subdued private consumption growth, which is only starting to show signs of stabilizing,” he said.
FASTER INFLATION
For Patrick M. Ella, an economist at Sun Life Investment Management and Trust Corp., said inflationary pressures likely dented consumer activity.
Headline inflation accelerated to 4.1% in March. This was the quickest pace in nearly two years or since the 4.4% in July 2024, and likewise marked the first time since then that the headline print breached the BSP’s 2%-4% target.
For the first three months, headline inflation averaged 2.8%.
“The jump in March inflation matters because it signals that the pass-through from the oil shock had already begun. Once fuel and freight costs rise, they start feeding into food, transport, and other essentials, which weakens household purchasing power,” Marites M. Tiongco, professor and dean of the School of Economics at the De La Salle University, said in an e-mail.
Harumi Taguchi, principal economist at S&P Global Market Intelligence, said high inflation and weaker remittances may have kept real private consumption weak in the first quarter and will continue to do so in the next quarters.
The Philippine central bank now expects inflation to average 6.3% this year and 4.3% next year, both above its 4% ceiling, before returning to its tolerance range in 2028.
OUTLOOK
Meanwhile, economists expect the second quarter GDP data to reflect the full impact of the global oil shock.
“I would expect Q2 growth to slow to around 3.6% to 4.2%, because that is when households are more likely to feel the full impact of the oil shock through higher food, transport, and electricity costs. Once purchasing power weakens, consumer spending also softens, and that becomes a real drag on growth,” Ms. Tiongco said.
Ruben Carlo O. Asuncion, chief economist at the Union Bank of the Philippines, said the growth outlook will depend on the “persistence of oil driven inflation pressures, the pace of fiscal execution in the coming quarters, and policy calibration.”
S&P Global’s Ms. Taguchi, expects GDP to remain weak in the second quarter.
“Given that the major impact on the economy is caused by price and supply shocks, it would be effective if the programs included diversification of the sources of imported oil,” she said.
For Jun Hao Ng, assistant economist at Oxford Economics, the country’s economic performance in the second quarter will likely be modest as oil prices likely remain elevated.
“We should continue to see strong inflation through the quarter, which will put a cap on any strong recovery that was initially expected prior to the US/Israel-Iran conflict. To maintain economic growth, the government is likely to launch more targeted fuel subsidies, although fiscal constraints will limit the extent of the programs,” he said.
