‘Corruption to drag GDP growth to below 4% in Q4’

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January 14, 2026 | 12:00am

MANILA, Philippines — The Philippine economy faces a rising risk of undershooting growth expectations in the final quarter of 2025 as corruption probes tied to public infrastructure projects weigh on government spending, business sentiment and household consumption, according to HSBC.

Aris Dacanay, ASEAN economist at HSBC, said the ongoing investigation into flood control and other public works projects has introduced a level of uncertainty that is already spilling over into fiscal execution and private sector behavior.

“If public infrastructure spending continues to dip by 40 percent in November and December, there is a risk that growth can go below four percent for the fourth quarter of 2025,” Dacanay said, stressing that the estimate illustrates how sensitive growth is to the pace of government disbursement.

HSBC currently sees full-year 2025 growth at 4.7 percent, with fourth quarter expansion at around four percent, but “risks are tilted to the downside.”

For 2026, the bank forecasts growth of 5.2 percent and 5.6 percent for 2027, still below the country’s estimated potential of about 6.5 percent.

The economist said the immediate drag is coming from a sharp pullback in public infrastructure outlays, which also has broader implications for the labor market and household behavior. About 4.5 million Filipinos, or roughly 10 percent of total employment, work in construction.

“With 10 percent of your workforce directly related to what is being investigated to construction, I think a lot of households have increased their saving rate to prepare for the uncertain times ahead,” Dacanay said.

Despite stronger wage growth, consumption has remained subdued. Average daily wages rose by about seven to eight percent in 2025 while inflation averaged 1.7 percent, meaning real purchasing power improved.

Yet “as we speak, consumption growth is below five percent in real terms,” Dacanay said.

He attributed this to a higher saving rate, noting that 50 to 55 percent of households reported saving in the latest central bank consumer expectations survey, above pre-pandemic levels.

The combination of softer investment and cautious consumers is also reshaping the external accounts, Dacanay said. This should translate into a “drastic” improvement in the current account as import demand for capital goods and consumer products weakens.

That improvement, together with still-strong exports, could give the peso some support and open the door for further monetary easing.

HSBC expects one more rate cut from the Bangko Sentral ng Pilipinas this February, likely bringing the policy rate to 4.25 percent and narrowing the differential with the US Federal Reserve to 50 basis points.

“The intent is to basically boost domestic demand,” Dacanay said, citing the downtrend in confidence indicators and the need for monetary policy to offset weaker fiscal spending.

He said HSBC’s baseline is that the Fed would not cut rates in 2026, but the BSP could still move because “the improvement in the current account will give them room to cut rates further in an effort to make up for the slack of the fiscal engines.”

The bank also projects inflation to remain below three percent in 2026 and 2027, giving the BSP additional policy space to ease.

Still, Dacanay cautioned that the fiscal drag from stricter scrutiny of public spending could persist. Drawing a parallel with the pork barrel scam in 2013, he noted that the government underspent its budget for several years afterward.

“I think the fiscal drag will likely persist throughout the next two to four years because the process of improving due diligence and being able to scrutinize which projects are worth going for and which projects are not, is a process that does not happen overnight,” he said.

Looking ahead, Dacanay said 2026 would be a critical year as the Philippines begins its ASEAN 2026 chairship and faces closer international scrutiny.

“Although growth in the short term may look challenging, global investors will likely be on the watch on what the Philippines will do to rebuild its long-term fundamentals,” he added.