PSEi reflects cautious sentiment as growth slows in Philippines

The Philippines economy is experiencing a moderate deceleration, leading analysts to revise 2025 growth forecasts downward. This revised outlook follows weaker-than-expected third-quarter data, which highlighted persistent softness in domestic consumption and structural challenges in trade-exposed sectors.

Real Gross Domestic Product (GDP) expanded by 5.0% year-on-year in Q3 2025, falling notably short of the government’s target of 5.5%. While inflation has moderated to 3.7% year-on-year (y/y), lingering uncertainty stemming from administrative tariffs, policy unpredictability, and currency volatility has collectively constrained household confidence. The domestic Philippine Peso (PHP) weakened to 58.4 per U.S. Dollar (USD), a depreciation that raises imported inflation risks and significantly increases cost pressures for corporates holding foreign-denominated liabilities.

Mechanistically, the observed slowdown stems from multiple factors. These include sluggish government project execution, which impacts infrastructure spending multipliers; weak retail sales growth, which averaged around 4.2% y/y; and lower remittance inflows than anticipated, totaling roughly USD 40 billion year-to-date (YTD). The Bangko Sentral ng Pilipinas (BSP) has maintained the policy rate at 6.25%, signaling a delicate balancing act between supporting growth and anchoring inflation expectations. Meanwhile, investor sentiment has been particularly sensitive to perceived regulatory unpredictability in strategic sectors like energy and digital infrastructure, creating caution around new capital deployment. Corporate earnings across Philippine Stock Exchange-listed consumer and industrial firms have already reflected these pressures, with average net margins compressing by 1 to 2 percentage points year-over-year.

Financial markets have priced in these developments cautiously. The Philippine Stock Exchange Index (PSEi) remains range-bound, exhibiting selective gains in defensive sectors like utilities and telecoms, which are largely offset by declines in consumer staples and property sectors that are more sensitive to interest rates and consumption weakness. Bond yields for 10-year sovereign debt rose to 6.45% amid investor uncertainty, reflecting a growing risk premium related to potential fiscal slippage and the revised outlook for slower growth.

Forward-looking macro indicators, including the Purchasing Managers’ Index (PMI), retail sales volumes, and trends in Overseas Filipino Workers (OFW) remittances, will be critical for projecting the trajectory of Q4 GDP. Should these metrics stabilize, growth may approach 5.1%–5.2% in the next two quarters, but significant upside is severely constrained without a clear fiscal acceleration and a sustained recovery in private sector capital investment.