Philippine Economic Growth Forecast Slashed Amid Corruption Scandal

Nomura Global Markets Research has revised its forecast for the Philippine economy, projecting a growth rate of 4.7% for 2025, down from an earlier estimate of 5.3%. This adjustment is attributed to a corruption investigation linked to flood control projects, which has led to a significant decline in government spending. Nomura's Chief ASEAN Economist Euben Paracuelles and Macroeconomic Research Analyst Yiru Chen noted that GDP growth is expected to slow to 4% in the second half of the year, compared to 5.4% in the first half. The report indicates that government expenditures fell by 7.53% in September, exacerbating the economic outlook.

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The ongoing investigations into alleged corruption involving lawmakers, government officials, and private contractors have raised concerns about the integrity of infrastructure projects. President Ferdinand R. Marcos Jr. highlighted these issues during his State of the Nation Address in July, prompting further scrutiny. The decline in government spending is expected to continue, with Nomura predicting a fiscal deficit of 5.5% of GDP for the year. The potential for a delayed national budget in 2026 could further complicate the economic landscape.

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Despite the corruption scandal, Fitch Ratings and Moody’s have maintained their positive outlooks for the Philippines. Budget Undersecretary Joselito R. Basilio stated that both agencies believe the situation could lead to reforms that improve governance. Fitch has projected a GDP growth of 5.6% for 2025, aligning with the government’s target range of 5.5-6.5%. The agency emphasized the resilience of the Philippine economy, driven by strong domestic demand and infrastructure investments.

Steady PH growth in the next 3 years despite political noise — Fitch RatingsBusinessWorldBusinessWorldBusinessWorldBusinessWorld

Critics, including Capital Economics, warn that the corruption scandal could deter investment and consumer spending. They argue that heightened political uncertainty may lead firms to delay expansion plans, impacting sectors such as luxury goods and services. The Semiconductor and Electronics Industries in the Philippines Foundation, Inc. (SEIPI) echoed these concerns, suggesting that investor sentiment is being negatively affected by the ongoing investigations.

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The Philippine peso has recently depreciated to a record low of P59.13 per dollar, reflecting market concerns over economic growth and expectations of further monetary easing by the Bangko Sentral ng Pilipinas (BSP). The BSP has indicated that it will allow market forces to dictate the peso's value, which could lead to continued volatility. Analysts suggest that while the peso's weakness may have minimal immediate impact on inflation, it could erode confidence in the economy.

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• “This pencils in GDP growth slowing to just 4% in the second half from 5.4% in the first half and is based on the assumption that the decline in government expenditures in September will worsen in the next 3-4 months,” — Euben Paracuelles, Chief ASEAN Economist, Nomura Global Markets Research

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• “The experience from other emerging markets suggest that, even if the ongoing corruption scandal in the Philippines doesn’t fuel further unrest, a more concerted effort by the government to clamp down on graft could hurt investment as well as purchases of luxury goods and services,” — Capital Economics

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• “Nagtanong sila ng madami, but… they know that this will only improve processes. At saka wala silang sinasabing growth impact (They asked a lot of questions, but they know that this will only improve processes. And they didn’t say anything about its impact on growth),” — Joselito R. Basilio, Budget Undersecretary

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The Philippine economy faces significant challenges due to the ongoing corruption scandal, which has led to reduced growth forecasts and concerns about government spending. While credit rating agencies maintain a stable outlook, the potential for political instability and its impact on investment sentiment remains a critical issue for the country's economic future.

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