The role played by consumption after disappointing growth in Q4 – BPI
THE economic slowdown in the fourth quarter highlighted the Philippines’ overreliance on consumer spending, as there are no other sources of growth, the Bank of the Philippine Islands (BPI) said.
In a statement on Wednesday, BPI lead economist Emilio S. Neri, Jr. we noted that the performance of the last quarter of 2025 resembled the problems that arose when the economy collapsed during the violence of COVID-19.
“The recession shows not only financial weakness, but also the country’s limited and concentrated sources of growth,” said Mr. Neri. “This is the same risk that was seen during the violence.”
Household consumption continued to support gross domestic product (GDP) growth, but Mr. Neri noted that such a decline in the fourth quarter could have been avoided if manufacturing and agriculture had been strong enough.
“Even with a significant decrease in government construction costs, growth would have been acceptable if the manufacturing industry was in a strong position to overcome the difficulties, especially in agriculture and manufacturing,” he said.
The economy posted its weakest quarterly growth in 16 years at 3% in the three months to December due to muted household consumption, government spending, and investment.
In 2025, GDP growth reached 4.4%, the lowest in five years, the latest low that occurred during the pandemic and the resulting lockdown.
Growth in household consumption, which accounts for more than 70% of GDP, fell to 3.8% in the fourth quarter, the weakest performance since the -4.8% reported in the first quarter of 2021.
Agriculture, forestry, and fishing grew by 1% in the fourth quarter, accounting for 7.9% of the economy in 2025.
Industrial growth slowed by 0.9% during the period, while manufacturing stalled at 1.6%. In the fourth quarter, manufacturing accounted for 28.4% of the economy.
Mr. Neri said the Philippines needs various sources of growth to be able to withstand the changing economic conditions.
“The country cannot remain overly dependent on a small set of growth mechanisms such as spending and government spending,” he said. “Even if government spending normalizes by 2026, existing risks will continue unless the country expands its sources of growth. A diversified economy can be better equipped to deal with future crises and shocks.”
However, Mr. Neri noted that quality government spending will be key to rebuilding investor and consumer confidence.
He expects growth of 5.1% in 2026, with a recovery likely to begin in the latter half of the year.
He sees an opportunity to ease tighter monetary policy this year, citing a delayed recession and lower inflation target.
“For now, the weak GDP print has raised the possibility of a rate cut at the next BSP policy meeting,” said Mr. Neri. “With growth set to remain weak in the first half of 2026, further cuts may follow after a possible move in February, especially as inflation is expected to remain within target.”
Currently, the benchmark interest rate stands at 4.5%. The Monetary Board has so far reduced borrowing costs by 200 basis points from August 2024.
If Mr. With Neri expecting two rate cuts, the key policy rate could be brought to the lowest level in three and a half years at 4%.
The Monetary Board will hold its first policy meeting this year on February 19. — Katherine K. Chan
