Infra spending, consumption expected to stay weak — HSBC

THE ECONOMY may struggle to reach its potential this year as the flood control corruption scandal continues to dampen infrastructure spending, with corresponding spillover effects on consumption, HSBC Global Investment Research said.

HSBC Global said gross domestic product (GDP) growth will likely come in at 4.7% in 2025 with the fourth-quarter reading possibly ending at or under 4% with “risks tilted to the downside.”

“(I)f public infrastructure spending continues to dip by 40% in November and December, there is a risk that growth can go below 4% for the fourth quarter of 2025,” HSBC economist for ASEAN Aris D. Dacanay said at a briefing on Tuesday in Taguig City.

HSBC’s projections fall below the Department of Economy, Planning, and Development’s 4.8%-5% for the year.

The infrastructure corruption scandal that cast a cloud over Public Works officials, legislators, and private contractors triggered a review of public works spending, with knock-on effects on household consumption, dragging down economic growth to an over four-year low of 4% in the third quarter.

In October, infrastructure spending dropped for a fourth straight month, falling 40.1% year on year to P65.9 billion. It also fell 16.2% from September.

Household consumption growth slowed to 4.1% in the three months to September from 5.3% in the second quarter and 5.2% a year earlier, the Philippine Statistics Authority (PSA) reported.

The PSA is set to release fourth-quarter GDP data on Jan. 29. 

Mr. Dacanay noted the continued slowdown may cause GDP growth to settle at 5.2% by year’s end, towards the lower end of the government’s 5%-6% target band.

“Consumption will likely be slow in 2026, even when wages are increasing, because families, households in the Philippines usually tend to rein in their spending to prepare for the uncertain times ahead, whatever may come,” he said.

He said Bangko Sentral ng Pilipinas (BSP) expectations that the economy will begin to recover by the latter half of 2026 will materialize only if the government implements institutional reforms. 

The recovery will happen “if we’re able to push through with the necessary institutional reforms,” he said. “But at the status quo… I don’t think so.”

Nevertheless, the BSP may have enough leeway to further reduce key borrowing costs this year to spur demand, Mr. Dacanay said.

HSBC sees scope for a sixth straight 25 basis-point (bp) cut from the Monetary Board within the first quarter, even if the Federal Reserve decides to hold its rates steady.

“With consumption strong, growth strong, unemployment not really so bad but inflation becoming sticky, we’re not forecasting the Fed to cut rates further… Even if the Fed doesn’t cut rates, we do think the BSP will do the unprecedented and narrow its differential with the Fed by 50 basis points,” he said.

The Monetary Board capped off 2025 with a fifth consecutive 25-bp reduction at its December meeting, bringing the benchmark policy rate to an over three-year low of 4.5%. This brought its total cuts to 200 bps since it began its easing cycle in August 2024.

The central bank has noted that the current easing cycle is nearing its end, but BSP Governor Eli M. Remolona, Jr. still left the door open for another 25-bp cut at the next meeting on Feb. 19.

However, he noted a sixth straight cut may be “unlikely” considering current economic data and as the current policy rate is approaching their neutral rate. — Katherine K. Chan