The Philippine economy is expected to face continued headwinds in the third quarter of 2026, leading BMI Research, a unit of Fitch Solutions, to lower its full-year gross domestic product (GDP) growth forecast to 3.3%, down from an earlier projection of 4.7% made in April. This revision places the expected growth below the Marcos administration’s adjusted target range of 3.5% to 4.5% for the year, potentially extending the government’s streak of unmet growth targets to four consecutive years.

BMI Research cited early signs of diminished economic momentum entering the third quarter, highlighting subdued investment activity as a key factor. The agency also pointed to the renewed focus on a corruption probe tied to flood control projects, which intensified with the arrest of former House Speaker Martin Romualdez, a cousin of President Ferdinand Marcos Jr., on graft allegations. The investigation’s resurgence appears to have delayed both public and private construction initiatives, further hindering economic activity.

To achieve the downgraded 3.3% growth forecast, the economy would have to expand at an average of 3.9% in the second half of the year, a substantial increase from the 2.6% growth recorded in the first half. Meeting the government’s lower-end target of 3.5% growth would require an even steeper 4.4% expansion in the latter half, according to Socioeconomic Planning Secretary Arsenio Balisacan. He expressed optimism about a potential rebound in the fourth quarter, anticipating that halting the contraction in public construction and reaching zero growth in this sector could contribute about one percentage point to GDP.

While the Department of Budget and Management has yet to publish updated infrastructure spending figures for July and beyond, data indicate that the Department of Public Works and Highways has secured 99.5% of its budget as of August’s end to expedite project completion.

Despite a resilient manufacturing sector buoyed by global investment trends in artificial intelligence, other economic indicators have deteriorated, dampening overall growth prospects. BMI Research noted that elevated inflation continues to reduce household purchasing power and suppress discretionary spending, compounded by a worsening labor market with unemployment reaching a four-year high. Additionally, severe weather events, including tropical storms and monsoon flooding, have caused recurrent school and workplace closures, disrupting economic activity and household incomes.

The research unit now projects inflation to average 5.7% this year—below the central bank’s forecast of 6.1% but still significantly above the 3% target. Inflationary pressures may persist due to a weakening peso, which has recently surpassed 62 pesos per US dollar and could further decline toward 63 pesos per dollar.

Overall, the combination of fiscal challenges, ongoing investigations, inflationary pressures, and weather-related disruptions suggests a cautious and uncertain outlook for the Philippine economy in 2026.