Philippines' Q1 GDP Growth Outperforms Previous Quarter But Falls Short of Forecasts

The Philippine economy grew at an annualized rate of 5.4% in the first quarter of 2025, marking a slight improvement over the 5.3% expansion in the fourth quarter of 2024. However, this figure fell below economists’ expectations of 5.7%, underscoring a growing divergence between official data and market projections. On a seasonally adjusted basis, quarterly GDP rose just 1.2%, trailing the 1.6% median forecast. The gap between actual performance and expectations raises critical questions about the sustainability of growth amid shifting policy priorities and external headwinds.

At the heart of the Q1 growth was a dramatic surge in public spending, which jumped 18.7% year-on-year—the fastest pace since early 2020. This acceleration reflects the government’s strategy to front-load infrastructure investments ahead of the May 12 midterm elections, during which a 45-day election ban on public spending will take effect. While this fiscal push provided a temporary boost, it also highlights the challenges of sustaining momentum without structural reforms.

Household consumption, a key pillar of the economy, grew 5.3% year-on-year, up from 4.7% in the prior quarter. This improvement was fueled by easing inflation, which dipped to 1.4% in April—the lowest level in over five years. The decline in prices, driven by lower food and energy costs, has bolstered consumer confidence and could encourage the Bangko Sentral ng Pilipinas (BSP) to cut its benchmark rate at its June meeting.

Despite these positives, the economy’s quarterly momentum remains uneven. The 1.2% quarterly growth rate—well below the 1.6% forecast—suggests underlying weaknesses, particularly in private investment. Businesses may be holding back on capital expenditures amid lingering uncertainty over the election outcome and U.S. trade policies.

Economic Development Undersecretary Rosemarie Edillon emphasized the resilience of the Philippine economy in the face of global volatility, including U.S. tariff-related disruptions. However, the data reveals a reliance on short-term fiscal stimulus rather than organic demand. This dependency raises concerns about post-election sustainability. With the election ban now in effect, the second quarter could see a sharp slowdown in public spending, potentially offsetting gains from private consumption.

Investors should also monitor the BSP’s policy decisions. A rate cut in June, if implemented, could support borrowing and spending but risks reigniting inflation if global commodity prices rebound. Meanwhile, the Philippine stock market’s performance—tracked by the PSEi index—has remained volatile, reflecting uncertainty about the election’s economic impact.

In conclusion, the Philippines’ Q1 GDP figures paint a mixed picture of resilience and fragility. While public spending and easing inflation provided near-term support, the economy’s inability to meet growth expectations underscores deeper challenges. Sustained expansion will require balancing election-year fiscal activism with long-term structural reforms, particularly in boosting private investment and addressing trade barriers. With inflation at historic lows and monetary policy poised to ease, the outlook remains cautiously optimistic—but investors must remain vigilant to post-election policy shifts and global economic trends.

As the BSP weighs its next move, the Philippine economy’s path forward hinges on whether its growth can transition from election-driven stimulus to a broader, more durable recovery.