PHL economy expands 5.5% in Q2

By Aubrey Rose A. Inosante, Reporter

THE PHILIPPINE ECONOMY expanded at a slightly faster pace in the second quarter, driven by strong agriculture production and an uptick in consumption, the statistics agency said on Thursday.

Preliminary data released by the Philippine Statistics Authority (PSA) showed Philippine gross domestic product (GDP) grew by an annual 5.5% in the April-to-June period, up from the 5.4% in the first quarter.

It also matched the 5.5% median forecast in a ����ý poll, and the lower end of the government’s 5.5% to 6.5% growth target this year.

However, this was slower than the 6.5% growth in the second quarter of 2024.

On a seasonally adjusted quarter-on-quarter basis, the country’s GDP expanded by 1.5%, improving from 1.3% a year ago.

“The Philippine economy continues to show resilience and stability, even as global challenges persist and fuel uncertainty across many fronts,” Department of Economy, Planning, and Development (DEPDev) Secretary Arsenio M. Balisacan said at a briefing on Thursday.

“With this performance, we maintain our place among the fastest-growing economies in emerging Asia,” he said, adding the Philippines was only behind Vietnam (8%) and ahead of China (5.2%) and Indonesia (5.1%).

While the Philippines may fall behind India’s projected 6.5% growth, Mr. Balisacan said it is still likely to outpace Malaysia’s projected 4.3% GDP growth and Thailand’s 2.4%.

For the first half, GDP growth averaged 5.4%, slower than the 6.2% a year ago.

Mr. Balisacan said GDP must grow by 5.6% for the rest of the year to achieve the low end of the full-year target.

“I think we can do better in the second half. (I am) confident that inflation has gone down substantially and the past reduction in the policy rates is now beginning to be felt,” he said.

Inflation slowed to a near six-year low in July at 0.9% as utilities and food costs continued to ease. For the first seven months of the year, inflation averaged 1.7%, a tad higher than the central bank’s 1.6% forecast for 2025.

The Bangko Sentral ng Pilipinas (BSP) has lowered benchmark interest rates by a cumulative 125 basis points since it started its easing cycle in August last year.

To reach the upper end of the target, the DEPDev chief said the economy must grow by 7.5% in the July-to-December period.

“Of course, 7.5% is high, but it’s not impossible. I think that if we see continuing improvement in the confidence of our consumers and our domestic investors, (we can see) higher growth in consumption and investment and services,” he said.

PSA data showed household final consumption, which accounts for over 70% of the economy, jumped by 5.5% in the April-to-June period. This was faster than the 4.8% in the second quarter of 2024 but slower than 5.3% in the first quarter. It was the fastest since the 8.1% growth in the first quarter of 2023.

“Our strategic, sustained, and coordinated efforts to manage inflation and safeguard purchasing power are making an impact. Notably, rice prices, a major concern for households, have been declining steadily in recent months,” Mr. Balisacan said.

The election-related ban on public works dampened government final consumption expenditure, which grew by 8.7% in the second quarter from 18.7% in the first quarter and 11.9% a year ago.

National Statistician Claire Dennis S. Mapa attributed this slowdown to public construction, which contracted by 8% in the second quarter.

The 45-day election ban on public works started on March 28 and ended with the May 12 elections.

“We expect to maintain that momentum in the spending side. The second half of the year, you should see improvements in the construction, public construction spending because it’s there where we had a bit of a slowdown, but that was expected because of the election ban,” Mr. Balisacan said.

TARIFF UNCERTAINTY
Uncertainty over the US tariffs has started to weigh on the Philippine economy, as growth in exports, industry and investment slowed in the second quarter.

Total exports growth grew by 4.4% in the April-to-June period, picking up from 3.9% a year ago but slowing from the 7.1% growth in the first quarter.

Merchandise exports also rose by 13.6% in the second quarter, driven by semiconductors, as US firms began front-loading before the higher tariffs took effect.

The US set a 19% tariff on Philippine goods, which took effect on Aug. 7.

“I expect the local economy to stabilize a bit with all this tariffs uncertainty, although they’re still there, but I think that supposedly this is the end of that series of announcements. We hope that there will be no further destabilization in the expectations about trade uncertainty,” Mr. Balisacan said.

Meanwhile, exports of services contracted by 4.2% in the second quarter, a reversal of the 6.3% growth in the previous quarter and 7.6% a year ago.

“It’s possibly following the overall state of the global economy. In recent months, we saw deceleration and uncertainty in the trade sector, including trade and services,” Mr. Balisacan said.

On the other hand, imports of goods and services slowed to 2.9% in the second quarter, slower than the 5.3% in the same period last year and 10.3% in the first quarter.

Gross capital formation, the investment component of the economy, grew by 0.6% in the second quarter, slower than the 11.5% growth a year ago and the 4.8% growth in the first quarter.

“I think we will see a rebound of investment in the second quarter. The election ban is over so we should continue and that should be a positive factor. The domestic investment climate is improving as seen in the continuing decline in interest rates,” Mr. Balisacan said.

AGRICULTURE
On the supply side, agriculture output grew by 7% in the second quarter, the fastest in nearly 14 years or since 8.3% recorded in the second quarter of 2011.

Mr. Balisacan attributed the strong rebound in farm output to palay and corn, which grew by 14.2% and 29.8% respectively.

The services sector, which made the biggest contribution among major industries, expanded by 6.92% in the second quarter, faster than 6.87% a year ago.

The industry sector grew by 2.1% in the second quarter, slowing from 7.9% a year ago and 4.6% in the first quarter.

“Industry growth slowed to 2.1%, affected by declines in output for coke and refined petroleum products (-12.2%), chemical products (-6.6%), and computer and electronics (-2.5%),” Mr. Balisacan said.

Food manufacturing grew by 9.3%, slightly below the 10.8% in the previous quarter.

The PSA said among the main contributors to the second-quarter growth were wholesale and retail trade, repair of motor vehicles and motorcycles (5.8%), compulsory social security (12.8%) and financial and insurance activities (5.6%).

Gross national income posted an annual 8.2% growth in the second quarter, slightly lower than the 8.1% expansion a year ago.

Net primary income went up by 38.8% in the second quarter, higher than the 25.8% in the same period in 2024.

GROWTH OUTLOOK
Capital Economics Senior Asia Economist Gareth Leather said in a commentary that they expect “steady” growth for the rest of the year as domestic consumption will be supported by easing inflation and lower interest rates. They see Philippine GDP growth averaging 5.5% for the full year, meeting the low end of the government’s goal.

However, the “fragile” external environment poses risks to the outlook, Mr. Leather said.

“Trump tariffs and weaker global demand mean export growth is likely to slow further over the coming months.”

ANZ Research added that external headwinds would also affect private investment.

“Private investment remains constrained by low productivity growth and slowing global growth… Given the subdued outlook for external demand, private investment is unlikely to rebound in the near-term. However, the strong rise in capital goods imports in June indicates an increase in government capital expenditure, which can help partly offset the weakness in private gross fixed capital formation,” it said in a report.

While inflation has eased, private consumption will continue to be weighed down by low wages, ANZ Research added. “Overall, we forecast growth to ease to 5.1% in 2025.”

“We believe private investment spending will be more subdued, as businesses turn more cautious owing to surging global trade policy uncertainty and an increasingly challenging operating environment. In the same vein, we expect goods export growth to slow due to the impact of US tariffs, but acknowledge rising downside risks particularly from sectoral tariffs on semiconductors in the coming quarters,” Nomura Global Markets Research said in a separate note.

It expects the economy to grow by 5.3% for the full year. “Our forecast pencils in GDP growth slowing to 5.2% year on year in the second half from 5.4% in the first half, even as we expect a rebound in public investment spending.”

Jonathan L. Ravelas, senior adviser at Reyes Tacandong & Co., said that global trade uncertainty and supply chain risks are a “red flag” for long-term growth.

“We’re on track, but not cruising,” Mr. Ravelas said. “Stakeholders should double down on consumer confidence, unlock private investments, and leverage [the agriculture sector’s] momentum.”

“The second half is crucial — it’s time to push, not pause.”