Philippine Growth Cools Again as Prices Bite and Shocks Mount

The numbers and the market read

The statistics agency reported the economy expanded 2.1% from a year earlier in the third quarter, slowing from 2.4% in the prior quarter and landing a full percentage point below the 3.1% Bloomberg News survey median. Markets marked it down on impact, with the peso off 0.3% and the main equity index lower by as much as 0.7%.

What is hitting growth

Farm output dropped 4.8% as typhoons battered the climate vulnerable country, and El Niño clouds the outlook from here. Cyclones and the monsoon disrupted production, cutting rural incomes and adding to supply pressure. Services growth kept easing.

Elevated food and energy costs constrained consumer spending, a key driver, while tighter financial conditions weighed on investments that stayed in contraction. Compared with nearby economies, the expansion ran at under half the rate of Indonesia or Malaysia and at below one-fourth of Vietnam's.

Prices, policy, and the peso

Inflation quickened to 7.8% in October, the fastest in almost four years, setting up expectations the Bangko Sentral ng Pilipinas would extend rate hikes after a 50 basis point move in October. The figures also reflect damage from the US-Iran war that has lifted crude prices and inflation, prompting rate increases. Inflation has stayed well above the BSP's 3% goal since March.

Economic Planning Secretary Arsenio Balisacan did not urge a pause, saying the central bank is working to cool price gains. "If the BSP actually succeeds in anchoring the inflation expectation back to the target, then that actually will impact positively consumption and investments," he said in Manila. "It's not necessarily bad for growth."

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The BSP is balancing soft activity with soaring inflation and the need to bolster the peso, which has dropped nearly 7% this year to stand as Asia's second-worst performer. "While we think they should still deliver more jumbo hikes, they may opt for a smaller hike in December because of growth concerns," said Emilio Neri Jr., lead economist at Bank of the Philippine Islands. He warned that a smaller move could leave the peso under more pressure and "increase the possibility of inflation getting de-anchored." His bottom line on prices: "Core inflation is just rising too fast."

Politics, targets, and your portfolio

Balisacan said achieving 3.5% to 4.5% growth in 2026 is "very challenging at this point given the current environment but we are hoping that the fourth-quarter performance will be better." Growth began to slow in last year's third quarter as confidence slumped after President Ferdinand Marcos Jr. disclosed corruption in government tied to flood related infrastructure worth billions of pesos. The scandal remains unresolved, and Vice President Sara Duterte faces a trial in the Senate regarding alleged unexplained wealth; she has denied any wrongdoing. Marcos also faces pressure to back an economy that depends significantly on energy imports from the Middle East.

The bottom line: a cooler economy, sticky inflation, higher rates, a weaker peso, and a political overhang leave Philippine assets more sensitive to data and policy signals as investors balance soft activity against further tightening.

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