MANILA, Philippines – The Philippine economy grew by only 2.3% in the second quarter of 2026, slowing further as weak investment and elevated prices weighed on economic activity, the Philippine Statistics Authority reported on Friday, August 7.

The latest figure was lower than the 2.8% growth recorded in the first quarter of 2026 and the revised 5.4% expansion in the second quarter of 2025. It brought economic growth in the first half of 2026 to 2.6%. 

The 2.3% expansion in Q2 2026 was the weakest since Q4 2009, excluding the COVID-19 pandemic, when the economy grew by 1.8%.

Economy, Planning, and Development Secretary Arsenio Balisacan said domestic demand remained subdued as total investment continued to decline, while household consumption slowed down amid higher prices, job losses, and weaker remittance receipts linked to the conflict in the Middle East.

Gross capital formation, a broad measure of investment, contracted by 9.2%. Its largest component, gross fixed capital formation, fell by an even steeper 13.7%, its worst non-pandemic performance since the second quarter of 2011.

The biggest drag was general government construction, which plunged by 32.4% year-on-year. The broader industry sector consequently contracted by 2.4%, even as manufacturing continued to grow.

“Although public construction is a small part of the economy, the amount of that contraction, 32%, brought a significant impact on the economy,” Balisacan said.

He added that the economy could have grown by at least one percentage point more had public construction simply recorded zero growth instead of contracting. He said that reports on the ground showed that officials and employees were more reluctant to approve or take responsibility for projects given the heightened scrunity following the flood control scandals of 2025.

The country’s chief economist also said that there are reasons to believe that hesitancy will ease.

“The Department of Budget and Management began releasing mobilization funds for 2026 infrastructure projects to the Department of Public Works and Highways toward the end of June. The DPWH in turn started awarding contracts in June and July. We therefore expect public construction and infrastructure spending to begin picking up in the third quarter and gain further momentum in the months ahead, ” he added in his opening statement.

The government expects construction spending to pick up in the third quarter and accelerate further toward the end of the year, as agencies implement catch-up plans and spend funds left unused during the first half.

Household spending, traditionally the Philippine economy’s main growth engine, expanded by just 2.8%. Excluding the pandemic, this was its weakest growth since the third quarter of 2010, when consumption rose by 2.6%.

Balisacan attributed the slowdown partly to high inflation and weaker consumer confidence. He said the government must convince households that elevated prices are not permanent and that economic conditions will improve.

The government has already slashed its growth target range to 3.5% to 4.5% for the full year, amid weaker investment, elevated inflation, and domestic and external uncertainties. The World Bank expects the Philippine economy to grow by 3.7% in 2026. 

To reach at least the 3.5% lower end of that target, Balisacan said the economy would have to grow by no less than 4.4% in the second half. He acknowledged that this would be “demanding,” but maintained that it remained possible if infrastructure spending rebounds and inflation continues to ease.

Despite the combination of slower growth, high inflation, and rising unemployment, Balisacan rejected concerns that the Philippines was heading toward stagflation, a prolonged period of weak economic activity accompanied by persistently high prices.

There were also bright spots in exports, agriculture, and manufacturing. Agricultural output grew by 2.7%, while exports of goods surged by 17% and exports of services rose by 6.9%. Net exports contributed 1.2 percentage points to gross domestic product (GDP) growth.

Balisacan said stronger exports, particularly semiconductors and electronics used in artificial intelligence systems, electric vehicles, and other advanced technologies, were helping diversify the economy beyond consumption. Exports of consumer electronics grew by 230.3% year-on-year in the second quarter, while exports of components/devices, or semiconductors, rose by 13.4%.

Balisacan said this was related to the “boom” in AI and related sectors, which require these electronics and semiconductor components.

“We have been exporting electronics and semiconductors for a while. But we now have to expand and move into higher level of manufacturing, semiconductor and electronics manufacturing, especially those that make use of advanced or supporting advanced technologies like AI,” he added.

The World Bank had earlier warned that investment was slowing amid heightened scrutiny of infrastructure spending following alleged corruption in flood control projects, as well as a surge in global energy prices that compounded the country’s already high power costs. (READ: Cheaper PH electricity? Go beyond system loss; fix costly power contracts)

Ahead of the announcement, Bank of the Philippine Islands lead economist Emilio Neri Jr. forecast second-quarter growth at 1.9%. He cited another steep contraction in public infrastructure spending, softer private investment, and slower household consumption as high transport and electricity costs eroded purchasing power. – Rappler.com