Subdued economic growth likely persisted into the second quarter (Q2) 2026, as heightened geopolitical tensions in the Middle East weighed on global sentiment and spilled over into the domestic economy.
Metrobank forecasts second-quarter gross domestic product (GDP) growth of 2.2% year-on-year (YoY), down from the preceding quarter.
Consumer sentiment deteriorated further last quarter, according to a Bangko Sentral ng Pilipinas’ (BSP) survey on consumers. The conflict in the Middle East stoked domestic pump prices and eroded households’ purchasing power. Consumers also perceived current government efforts as insufficient to cushion the impact of rising prices.
Car sales fell YoY in the April to June period, as high oil prices disincentivized vehicle purchases. In addition, growth in consumer goods imports also dropped on weak demand and expensive shipping costs.
Higher oil prices and elevated inflation dampened consumer sentiment and arrested consumption last quarter.
Businesses share the same sentiment. The BSP’s surveys on companies show that businesses remained pessimistic in April and May. Higher prices, together with a weaker peso, continue to increase operational costs. This, combined with weak consumer demand, compresses profit margins, prompting cost-cutting measures including investments.
Oversubscribed auctions by the Bureau of Treasury suggest that while companies may still have funds to bankroll expansion, they may be more inclined to hold cash or invest in liquid, low-risk assets amid heightened uncertainties.
Overall, growth in private investment is expected to have moderated last quarter, weighed down by subdued sentiment, elevated costs, and uncertain economic conditions.
Sluggish government spending due to contraction in public construction likely weighed on economic growth in Q2. According to the Department of Budget and Management, infrastructure spending fell 51.7% YoY in April and 35.3% in May. This largely stems from more stringent validation procedures for payment claims, as part of efforts to improve governance.
To help cushion the economy amid volatile global oil prices, the government rolled out targeted subsidy programs. These include fuel subsidies for public utility vehicle operators, farmers, and fisherfolk.
However, these interventions are unlikely to fully offset the economic drag from the infrastructure spending slump.
Net exports will exert downward pressure on growth in Q2, as the pace of import expansion outweighs export gains. Geopolitical tensions prompted manufacturers to aggressively frontload input orders. This, alongside higher prices for imported fuel and a depreciating peso, widened trade imbalances.
Export growth also slowed at the start of the quarter. The Middle East conflict severely disrupted manufacturing momentum, triggering critical closures along major global trade routes and halting shipments. Nevertheless, a strong upside is that the Philippines is successfully capturing the global AI surge, driving a notable increase in physical assembly and technology export orders.
The Q2 2026 GDP data, scheduled for release on August 7, is expected to reveal broad-based weakness. Consumption, investments, and government spending likely remained subdued amid domestic and external headwinds. The country’s trade position also continued to widen, as the growth in imports continues to outpace exports.
MARIAN MONETTE FLORENDO-OBIAS is a Research Officer of the Macro Research Department, Markets Advisory Division, Financial Markets Sector, at Metrobank. She is a Certified Treasury Professional and holds an undergraduate degree in Mathematics from Ateneo de Naga University and an MA Economics degree from UP Diliman. She loves traveling and watching mystery movies in her spare time.
SOPHIA THERESE “PIA” BONIFACIO is a Research Officer at Metrobank, covering local and offshore macroeconomic research. She obtained her Bachelor’s degree in Economics with a Specialization in Financial Economics, cum laude, from the Ateneo de Manila University and is a Certified UITF Sales Person (CUSP). Pia enjoys long road trips and loves a good cup of hojicha latte.
