The Philippine economy expanded by just 2.3% in the second quarter of 2026, its slowest pace since the fourth quarter of 2009 — excluding the COVID-19 pandemic — as a collapse in public construction spending, weak investment, and elevated inflation dragged on activity, the Philippine Statistics Authority reported on Friday. The result fell well short of analyst forecasts and marked a further deceleration from the 2.8% growth recorded in the first quarter, bringing first-half growth to 2.6%, far below the government's full-year target of 3.5% to 4.5%.

The single largest drag on the economy was a 32.4% year-on-year plunge in government construction spending, which sent the broader construction sector into a 14.8% contraction and caused overall investment — measured by gross capital formation — to shrink by 9.2%, a fourth consecutive quarterly decline. Economic Planning Secretary Arsenio Balisacan attributed the collapse in public spending to a corruption scandal involving flood-control projects that came to light in 2025, saying it had made government officials reluctant to approve or take responsibility for new infrastructure projects. He estimated that had public construction simply recorded zero growth rather than contracting sharply, overall GDP growth would have been at least one percentage point higher. Household consumption, which accounts for more than two-thirds of Philippine economic activity, grew by only 2.8% — its weakest non-pandemic performance since 2010 — as high inflation, job losses, and weaker remittances from Filipinos working in Middle East conflict zones eroded purchasing power. Inflation averaged 5.0% over the first seven months of 2026, well above the central bank's 3.0% target.

There were, however, genuine bright spots. Agricultural output grew by 2.7%, and exports surged, with goods exports rising 17% and services exports up 6.9%, together contributing 1.2 percentage points to GDP growth. Consumer electronics exports soared 230.3% year-on-year, while semiconductor exports rose 13.4%, trends Balisacan linked to booming global demand for components used in artificial intelligence systems and electric vehicles. He said the Philippines, a long-established exporter of electronics, now needed to move into higher-value manufacturing to capitalise on these trends.

Officials expressed cautious optimism about the second half of the year. The Department of Budget and Management began releasing infrastructure mobilisation funds in late June, and the public works agency started awarding contracts in June and July. Balisacan said construction activity and government spending should begin recovering in the third quarter and accelerate through year-end. To reach even the lower bound of the government's 3.5% full-year target, the economy would need to grow by at least 4.4% in the second half — a pace Balisacan acknowledged would be