Philippines’ Q4 growth skids to 5-year low, raises odds of further rate cuts

[MANILA] Philippine economic growth slumped to its weakest in almost five years in the final quarter of 2025, with the full-year pace coming in well behind the government’s target in a sharp blow to this year’s outlook and raising the odds of further rate cuts.

The weak economic performance was in part caused by a corruption scandal tied to infrastructure projects that slowed public spending and undermined consumer and investor confidence.

Gross domestic product expanded 3 per cent in the fourth quarter from a year earlier, the slowest pace since the first quarter of 2021 and well below the 4 per cent median forecast in a Reuters poll, bringing full-year growth to 4.4 per cent. It was also significantly short of the government’s 5.5 per cent to 6.5 per cent target for the year.

Household consumption grew 3.8 per cent in the fourth quarter year-on-year, and government spending rose 3.7 per cent, both easing from 4.1 and 5.8 per cent in the prior quarter, respectively. Gross capital formation contracted 10.9 per cent, a sharper decline from 2.8 per cent in the third quarter.

Economic Planning Secretary Arsenio Balisacan said the depth of the slowdown came as a surprise, but stressed the government was committed to reversing the trend this year through a host of reforms aimed at rebuilding public confidence.

“We see 2026 as our rally point. We are accelerating efforts to restore public trust through improvements in governance and public services,” Balisacan told a press conference.

Growth is expected to regain momentum, with the government forecasting a 5 to 6 per cent expansion in 2026 and further acceleration in 2027.

Bangko Sentral ng Pilipinas Governor Eli Remolona said last week that a weaker-than-expected fourth quarter GDP would factor into the central bank’s decision at its February 19 policy meeting.

The central bank has cut its benchmark rate by a cumulative 200 basis points to a three-year low of 4.5 per cent in the current cycle, which Remolona has said was nearing its end.

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But some analysts expect more rate cuts this year.

Capital Economics, for instance, is pencilling in additional reductions to borrowing costs in the coming quarters following the disappointing data.

“Authorities have pledged to restart infrastructure projects, which should help to reverse some of the recent weakness in activity. Even so, risks to the outlook remain firmly skewed to the downside,” Capital Economics said in a note. REUTERS