The Philippine economy grew by a weaker-than-expected 2.8% in the first quarter of 2026, marking its slowest pace since the first quarter of 2021 and, excluding pandemic effects, the weakest since the fourth quarter of 2009. This growth rate was significantly lower than the 5.4% expansion in the same quarter last year and fell below the 3.4% median forecast from economists. The Department of Economy, Planning, and Development (DEPDev) attributed the slowdown to the Middle East conflict, which drove up global oil prices, lingering effects of a corruption scandal from last year, and delays in the 2026 national budget. Consequently, the government plans to lower its growth targets for the year from the initial 5-6% range.
The slowdown in GDP growth is also reflected in key economic indicators. Household final consumption expenditure, a major economic driver, grew by 3% annually, down from 5.28% in the previous quarter. Investment, measured as gross capital formation, contracted by 3.3% in the first quarter, although this was an improvement from the 9.4% decline in the fourth quarter of 2025. Government spending also slowed significantly, increasing by 4.8% compared to 18.7% a year ago.
The oil shock, particularly from the US-Iran conflict, has had a substantial impact on the Philippines, which imports over 90% of its oil. This has led to inflation running at its fastest in three years, with the Philippine peso being the worst-performing currency in Asia and its stock market the second-worst globally since the conflict began. Analysts warn of a risk of stagflation, characterized by weak growth, high inflation, and unemployment. The central bank recently raised its benchmark policy rate by 25 basis points to 4.5% to combat inflation, but further monetary tightening could hinder economic recovery, especially as supply shocks remain unaddressed.
