THE country’s economic growth could improve in the second half of 2026, but a potential rebound may give the Bangko Sentral ng Pilipinas (BSP) greater room to prioritize inflation control, including a possible further increase in its policy rate, according to BPI lead economist Emilio Neri, Jr.
Neri said growth could benefit from favorable base effects, particularly in public construction, as government infrastructure spending began falling in the third quarter of 2025. A stabilization in infrastructure implementation or improved budget execution could result in a notable improvement in the growth rate.
However, the recovery outlook comes as inflation risks remain elevated. Higher oil prices, adverse weather, rising fertilizer costs and the potential impact of El Niño on food production could keep price pressures high, Neri said.
The BSP may therefore need to raise its policy rate further to contain inflation, with Neri saying a larger rate increase later this year cannot be ruled out if food-price pressures from El Niño prove more severe than anticipated.
The central bank has been balancing the need to control inflation against the risk of sharply slowing economic activity, resulting in a gradual pace of tightening in recent months. But stronger growth in the second half could allow the BSP to put greater emphasis on anchoring
inflation expectations.
The outlook follows a sharp slowdown in the second quarter, when the economy grew just 2.3 percent, down from 2.8 percent in the first quarter and 5.4 percent a year earlier.
Weak investment was the biggest drag. Gross fixed capital formation contracted 13.7 percent, while construction spending fell 14.8 percent and government construction plunged 32.4 percent. Household consumption also grew only 2.8 percent as consumers became more selective in their spending.
Exports, meanwhile, provided some support, with combined goods and services exports growing 12.2 percent in the quarter. Merchandise exports rose 17 percent, driven by semiconductors, while services exports increased 6.9 percent. / KOC