“Unless these structural issues are addressed in a careful manner, the country risks settling into a lower growth trajectory”
THE bad news is that the Philippine economy experienced a marked slowdown in 2025, with GDP growth slumping to 3 percent in the fourth quarter.
This is the weakest performance since the pandemic, and it is largely due to the flood control corruption scandal and adverse weather conditions.
The sharp deceleration led to full-year growth of just 4.4 percent, falling short of the government’s 5.5 to 6.5 percent target for the third consecutive year, despite attempts to restart infrastructure projects under stricter anti-corruption rules.
The economic downturn underscores how governance failures and climate-related shocks combined to produce the Philippines’ weakest post-pandemic economic performance, exposing vulnerabilities that extend well beyond a normal slowdown.
Rather than a temporary slump, the 2025 outcome suggests deeper institutional and capacity constraints on growth.
The numbers are worrisome. Fourth-quarter GDP growth of 3 percent, a level last seen when the economy was still recovering from Covid-19, significantly affected momentum.
The resulting 4.4 percent full-year expansion represents a clear deceleration from earlier post-pandemic rebounds and reinforces concerns about the credibility of official growth projections.
Missing the target for three straight years means that optimistic assumptions about public spending execution, climate resilience, and governance reform have not translated to meaningful results on the ground.
Two major factors have been already been cited for the slump: adverse weather and the flood control corruption scandal.
Weather-related disruptions are not new to the Philippine economy, but their economic impact has intensified in recent years.
Stronger typhoons, prolonged flooding, and erratic rainfall increasingly affect agricultural output, supply chains, transport networks, and power generation.
These disruptions translate to higher food prices, logistical bottlenecks, and production losses, complicating both growth and inflation management. Climate vulnerability, therefore, is no longer a peripheral environmental concern but a central macroeconomic constraint.
Without large-scale, well-executed investments in climate adaptation and disaster-resilient infrastructure, growth will remain fragile in the years ahead.
More damaging in the short term, however, is governance failure.
The nearly 42 percent contraction in government infrastructure spending is extraordinary, particularly since public works have been a cornerstone of growth since the previous administration’s “Build, Build, Build” program.
High infrastructure spending stimulates employment, attracts private investment, and supports regional development. Its abrupt collapse generated depressed construction activity and weakened manufacturing and services sectors tied to public works, according to keen observers.
More importantly, the flood control corruption scandal did not merely suspend a handful of tainted projects. It triggered a significant drop in public spending as agencies grew wary of risks amid investigations and public scrutiny.
This reflects a reality in the country today: anti-corruption drives, while necessary and politically unavoidable, often lead to widespread delays because institutions lack robust, rules-based systems that distinguish between legitimate enforcement and indiscriminate spending freezes.
Accountability mechanisms tend to be reactive rather than preventive, leading to heavy economic costs, particularly when external and environmental problems are already staring us in the face.
Economic Planning Secretary Arsenio Balisacan’s explanation implicitly acknowledged this situation.
The Marcos administration’s emphasis on investigations and stricter safeguards is sound, but it also exposes a failure to design governance rules that allow public spending to proceed even as wrongdoing is prosecuted. In this sense, corruption risk has evolved into an economic risk, capable of undermining growth, employment, and investor confidence.
The government objective of resuming and accelerating public works while enforcing tougher anti-corruption measures may be a step in the right direction, but it is execution that will be decisive.
Stronger project planning, transparent and standardized procurement, digital tracking of fund releases, and clearer lines of individual accountability could prevent entire spending programs from grinding to a halt when scandals emerge. Just as important is strengthening the absorptive capacity of the Department of Public Works and Highways so that funds can be deployed quickly.
The 2025 economic slowdown was not unexpected. It should serve to remind us that weak absorptive capacity, governance bottlenecks, and acute climate vulnerability serve as hindrances to the economy’s ability to sustain growth of 6 percent or higher.
Unless these structural issues are addressed in a careful manner, the country risks settling into a lower growth trajectory that can only undermine job creation, slow poverty reduction, and weaken the administration’s long-term economic development agenda.
(Email: ernhil@yahoo.com)
