PHL recovery likely delayed in 2026 amid corruption drag, analysts say

By Aubrey Rose A. Inosante, Reporter

THE PHILIPPINE ECONOMY may shake off its slump by mid-2026, but lingering governance issues and execution bottlenecks could delay the recovery, economists said.

Growth is expected to remain subdued in the first quarter as households face income shocks and the lingering impact of natural disasters, John Paolo R. Rivera, a senior research fellow at the Philippine Institute for Development Studies, said in a Viber message on Jan. 31.

Companies are also postponing investment until policy clarity and governance signals improve, he pointed out. “A meaningful recovery is more likely from mid-2026 onward, rather than immediately in the first quarter, as confidence and execution constraints take time to unwind.”

The economy grew 3% in the fourth quarter of 2025, bringing full-year gross domestic product (GDP) to 4.4%, well below the government’s 5.5%-6.5% target. This was the slowest in almost five years and, excluding pandemic effects, the weakest since 2009.

Economy Secretary Arsenio M. Balisacan attributed the slowdown to bad weather and a corruption scandal involving anomalous flood control projects, which dampened consumer and investor sentiment.

“A stronger pickup would be underpinned by faster public spending rollout, easing inflation and interest rates, a stable peso and improved investor sentiment that crowds in private capital,” Mr. Rivera said.

Household consumption may recover gradually, but a durable rebound depends on restored confidence and accelerated investment-led growth.

Citigroup, Inc. projected modest GDP growth in the first half, before gaining momentum in the second half. Its baseline forecast is 3.5-4% GDP growth in the first half, before gradually reaching around 5% by the fourth quarter, it said in a statement last week.

It expects full-year growth of 4.5%, slightly above last year’s 4.4% but below the government’s target.

Citi expects public investment to continue contracting in the first quarter, though slower than in the last quarter.

Government spending grew 3.7% last quarter and 9.1% for the year, partly due to front-loaded election-related disbursements. “Any subsequent recovery of public investment spending should be quickly followed by a turnaround of household consumption growth.”

Household consumption, the economy’s largest component at over 70%, rose 3.8% last quarter and 4.6% for the year. Citi also flagged potential policy easing, noting room for a 25-basis-point BSP rate cut in February, with a further cut in April possible if growth remains weak.

The University of Asia and the Pacific expects a rebound this quarter, supported by early disbursement of P1.6 trillion to local government units and low inflation. It projects 5% GDP growth for the first quarter and full year of 2026, matching the lower bound of the government’s target.

Analysts stressed that a sustained recovery hinges on governance reforms. Emmanuel J. Lopez, an associate professor at Colegio de San Juan de Letran, said political and geopolitical risks continue to impede the economy.

“More than short-term solutions, hard investments should be implemented, resulting in a long-term benefit,” he said via Viber.

Calixto V. Chikiamco, president of the Foundation for Economic Freedom, said recovery would depend on transparency and anti-corruption measures.

Without these, the economy will likely face a period of slow growth, he said, citing high interest rates, geopolitical tensions and political instability.

Business groups are cautiously optimistic. The Federation of Philippine Industries (FPI) expects investment to rebound as delayed infrastructure projects resume.

The “real lift” will come from faster public spending, clear policy signals and renewed investor confidence,” FPI Chairperson Elizabeth H. Lee said in a statement.