The first-quarter GDP numbers are out. As expected, they are not good.

Real GDP grew by just 2.8% year-on-year in the first quarter of 2026. That’s the weakest non-pandemic print since the global financial crisis, and well below the 3.4% that private-sector economists were forecasting.

What is most striking is how unusually broad the weakness is. With growth clocking in at 5.4% in 2025 Q2, 4.0% in Q3, and 3.0% in Q4, anemic growth is clearly not transitory. It’s in fact worsening.

With four consecutive quarters of decelerating growth, the gap between where we are and where we should be is getting wider. If you compare actual GDP today against a counterfactual path that simply extrapolates the pre-pandemic trend, we remain visibly below the line. Six years after the pandemic lockdowns, the Philippine economy still has not closed its pandemic scar.

A deeper look at the data tells us that investment is collapsing. Capital formation subtracted 1.6 percentage points from growth in Q1 2026. That is the third quarter in a row of negative contributions from investment, and the worst since the pandemic recovery. Households still consumed, government still spent on personnel and operations, but the country’s investment engine has stalled.

In particular, government construction has now been a major drag on total construction for four straight quarters. In Q1 2026 alone, government construction subtracted roughly 12 percentage points from total construction growth. Corporate construction held up, household construction is weakly positive, but the public sector is doing the opposite of what countercyclical fiscal policy is supposed to do in a slowdown. It is pulling back and not stepping up.

Governance failure

The most plausible single explanation is the flood-control corruption scandal that broke open in 2025. After the controversy, line agencies like the Department of Budget and Management (DBM) became understandably skittish about disbursements. Procurement slowed, notices to proceed stalled, and project pipelines that were supposed to absorb a chunk of the 2026 capital expenditure budget instead became a queue of paperwork career officials have been more reluctant to sign off.

You can think of this as the cost of governance failure expressed in pesos. The corruption itself was already costly, but the second-round effect (a public sector that has lost the will to spend) may end up being more expensive than the original theft. Recently, Fitch flagged exactly this dynamic when it put us on negative outlook last month. The Q1 print has now confirmed their diagnosis.

For most of the post-pandemic period, household consumption was the line that held even when investment and exports faltered. That buffer is now buckling. Consumption contributed 2.3 percentage points to growth in Q1 2026, the weakest quarter since the lockdowns. Food and non-alcoholic beverages, which had been adding 1.5 to 2 percentage points in a typical quarter, contributed merely 0.6.

That last data point deserves more attention. Filipinos are now cutting back on food, and that’s not surprising given the rise of petroleum and transportation costs owing to the US–Iran war. Also this week, the government reported a staggering 7.2% inflation rate, a severe jump from March’s 4.1%. In fact, that jump is the biggest monthly jump of inflation in 21^st century Philippines.

This is not the kind of consumption slowdown a rate cut fixes. In fact, the BSP also recently moved to increase its policy rate, which signals that they’re combatting inflation by trying to discourage spending to the extent possible.

As I teach my macroeconomics students, this is the usual trade-off confronted by central banks in stagflationary episodes: either we stabilize inflation but suffer a decline in growth, or maintain growth but suffer very high inflation. We cannot achieve the best of both worlds, at least in the short run.

On the production side, industry contributed essentially nothing to Q1 growth. Construction value added was actually negative for the second consecutive quarter, and manufacturing barely registered. Services carried almost the entire 2.8%. But even within services the workhorses were trade and real estate, not the higher-productivity segments like IT and business services that we keep telling ourselves are the country’s growth story.

What this means going forward

Where do we go from here? First, the 2026 full-year growth target (5.0% to 6.0%) is now becoming a fiction. A 2.8% Q1 print would require about 5.7% average growth in the remaining three quarters to hit even the low end. That is not happening, especially since the US–Iran war and the public infrastructure spending freeze is far from resolved.

Second, fiscal policy needs to unfreeze, and quickly. This can be done not by short-circuiting the corruption probe, but by giving line agencies clear, written guidance on what kinds of disbursements are safe to proceed with, and where the Office of the Solicitor General and the Commission on Audit (COA) can pre-clear procurement modes for the rest of the fiscal year.

The point is to restore the willingness to spend without restoring the willingness to steal. However, with the dissolution of the Independent Commission for Infrastructure on March 31, the momentum to go after the flood control co-conspirators seems to have lost momentum already.

Third, insofar as it can do little to abate the global oil supply problem, the administration needs a coherent demand-side response. The targeted ayuda (aid), the service contracting expansion, the fuel subsidies for drivers, the buffer stocks for staples—these were largely right responses. What has been missing is proper planning, urgency, and political will. With oil prices somewhat abating now, the urgency to act has similarly all but evaporated (notwithstanding the severe April inflation rate).

Finally, I want to flag that the 2.8% GDP growth rate looks worse against our peers in ASEAN, who seem to have weathered this crisis better. In the same first quarter of 2026, Vietnam grew by an amazing 7.8%, Indonesia by 5.6%, Lao PDR by 5.5%, Malaysia by 5.3%, and Singapore by 4.6%.

We are now the slowest-growing major economy in Southeast Asia. And note that every one of these countries is absorbing the same oil shock, the same Hormuz disruption, the same global slowdown. But somehow, we’re faring relatively poorly—an economic embarrassment as we chair ASEAN and host the ASEAN meeting this year.

I guess what I’m trying to say is that the Philippine government can blame external factors only up to a point. This is turning out to be more of a we problem than a global problem. – Rappler.com

Dr. JC Punongbayan is an assistant professor at the UP School of Economics and the author of False Nostalgia: The Marcos “Golden Age” Myths and How to Debunk Them. In 2024, he received The Outstanding Young Men (TOYM) Award for economics. Follow him on Instagram (@jcpunongbayan).

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