MANILA, Philippines — The country’s economic growth is projected to experience a sharper deceleration in the second quarter as a prolonged global energy crisis compounds deep-seated domestic vulnerabilities. The Congressional Policy and Budget Research Department (CPBRD) warned that second-quarter gross domestic product (GDP) growth could drop to as low as 1.5 percent.
If realized, this would mark a severe drop from the already slowed 2.8-percent growth recorded in the first quarter of 2026, forcing a major reassessment of the country’s full-year fiscal assumptions.
While the house think tank initially modeled a more optimistic second-quarter expansion between 2.5 percent and 3 percent, it revised its projections downward to a conservative 1.5-percent to 2.5-percent range. The revision stems from the realization that previous data points failed to capture the compounding, full-quarter impact of the war-driven oil shock:
- Lagging Data Realities: The first quarter’s 2.8-percent growth only absorbed roughly one month of economic disruption from the Middle East conflict.
- The Full-Quarter Toll: The second quarter represents a full three-month window of severely elevated prices for fuel, fertilizer, and imported inputs, creating a massive drag across the commercial supply chain.
Crucially, the CPBRD noted that the external oil shock is exacerbating an economic slowdown that was already well underway due to structural drops in domestic demand and anemic investments:
[Declining Household Consumption] ──┐
├──► [Anemic Q1 Growth: 2.8%] ──► [Full Q2 Oil Shock Impact] ──► [Projected Q2 GDP: 1.5% - 2.5%]
[Weakening Private Investment] ───┘
- Household Consumption Bleed: Private consumption, the historical spine of the Philippine economy, was already tapering off before the outbreak of the latest Middle East hostilities due to stubborn cost-of-living increases.
- Anemic Investment Appetite: Private sector infrastructure and capital investments are expected to remain flat or worsen as business operators pull back due to intense macroeconomic uncertainty and rising costs of borrowing (elevated interest rates).
- Sector-Wide Stagnation: The services sector is poised to sustain its deceleration, while the industrial sector is projected to offer near-zero contribution to expansion. Meanwhile, the agricultural sector is modeled to remain stuck in a slight contraction.
The downgraded forecast has led the CPBRD to declare it “highly unlikely” that the country will achieve its scaled-back target of 4 percent growth, let alone its original 5 percent baseline for 2026.
In a stark departure from traditional policy, the think tank floated a major structural pivot, urging state planners to scale down public sector expenditure and empower private enterprises:
“Policymakers are enjoined to consider reducing government spending and affording the private sector with more freedoms. After all, heavy and sustained deficit spending has proven to be ineffective at fostering desired levels of economic growth… neither consumption nor investment have kept pace with government spending.” — Congressional Policy and Budget Research Department
To restore household purchasing power and make local corporations competitive under these crisis conditions, the CPBRD proposed aggressive tax reforms. These include a significant reduction in the country’s baseline 12-percent value-added tax (VAT) rate alongside targeted tax breaks for individual income earners to cushion against the ongoing energy squeeze.
