-- The Philippines' economy in the first quarter further shrank to its weakest since the pandemic as the Middle East conflict added more inflationary pressure, weakening consumption and investor confidence.
The first-quarter gross domestic product rose 2.8% year on year, lower than the previous quarter's 3% rise, according to data the Philippine Statistics Authority published on Thursday.
The GDP missed market expectations of a 3.3% growth, as well as ANZ's forecast of a 3.4% increase. Analysts polled by Reuters predicted a 3.5% rise.
Household consumption climbed 3%, weaker than the 3.8% rise in the fourth quarter of 2025. Gross capital formation, the gauge for investment growth, fell 3.3%, reflecting a slump in investor confidence.
In a press conference, Economic Planning Secretary Arsenio Balisacan attributed the current GDP to the effects of the Iran war on global crude prices, which have brought disruption in the international supply chain, according to a Reuters report.
Meanwhile, there's improvement in government spending as it jumped 4.8% year on year, stronger than 0.7% in the previous quarter. Before 2025 ended, the government toned down its spending, especially on infrastructure, in the wake the "ghost projects" controversy, where the money allocated for non-existing flood control projects were questioned.
"Nonetheless, despite this tentative improvement in government spending, the Philippines' economy remains in a challenging position amid elevated inflation, weak growth and persistent external headwinds," ANZ economists Sanjay Mathur and Kausani Basak said in a note. "Overall, risks to near‑term growth remain skewed to the downside, particularly if inflation stays elevated or global geopolitical conditions deteriorate.'
Moreover, wholesale and retail trade, especially the repair of vehicles and motorcycles, was one of the factors to the GDP growth, rising 4.6% from a year earlier. Financial and insurance activities jumped 3.4% and public administration and defense, especially compulsory social security, climbed 8.6%, the PSA said.
Among key economic sectors, the services sector increased 4.5% year on year, but the agriculture sector slid 0.2%, while the industry sector inched 0.1% lower from a year earlier.
Capital Economics said that the Philippines is currently going through stagflation, which is a combination of slowing and very weak GDP growth, which triggers a spike in inflation.
"Even if the crisis in the Middle East ends soon, the central bank looks almost certain to hike rates again imminently," Capital Economics said in a note.