After a third consecutive year of missing government growth targets, the Philippine economy is poised for a measured rebound in 2026, with UniCapital projecting GDP growth of 5.2 percent, within the government’s 5 to 6 percent target range.
The outlook hinges on the resumption of public infrastructure spending, clearer governance signals, and continued support from consumption, which UniCapital believes can help stabilize growth after a challenging 2025.
In its latest analysis, UniCapital said that “a sustained rebound in public infrastructure could help stabilize GDP and provide a modest upside to economic activity in the coming quarters,” noting that the Department of Budget and Management’s planned Php 1.3 trillion infrastructure allocation for 2026 will be critical.
The spending program, equivalent to 4.3 percent of GDP, is lower than the 5.2 percent share in 2025, but UniCapital said it should still support construction, materials, and domestic demand “assuming timely execution of public projects and clearer signals of governance and policy support.”
The forecast comes after Philippine GDP growth slowed to 4.4 percent in 2025, down sharply from 5.7 percent in 2024 and below the government’s 5.5 to 6.5 percent target. The outcome also fell short of the 5.4 percent consensus estimate, marking the third straight year that growth missed official expectations.
Economic momentum weakened further in the fourth quarter, with GDP expanding by just 3.0 percent, compared with 3.9 percent in the previous quarter and 5.3 percent a year earlier.
UniCapital attributed the slowdown primarily to a steep pullback in public infrastructure spending amid the flood-control corruption probe, compounded by weather-related disruptions to agriculture. “Government construction spending materially fell by 42 percent in 4Q25 alone and 18 percent in FY25,” the report said.
The Philippine Statistics Authority, cited in the analysis, noted that “the decline in construction contributed a 1.1 percentage-point drag on overall GDP growth,” adding that GDP “could have expanded to 5.5 percent if construction had remained flat.”
While UniCapital views the impact of weather disturbances on agriculture as temporary, it warned that delayed infrastructure disbursements could have more lasting consequences. “The slowdown in infrastructure disbursements could have more persistent second-round effects on employment, income, and domestic demand if normalization is delayed,” the report said.
Despite weaker headline growth, the economy remained consumption-driven. Household final consumption expenditure, which accounted for 73 percent of GDP in 2025, grew by 4.6 percent year-on-year, only slightly slower than the 4.9 percent expansion in 2024.
Government consumption, representing about 15 percent of GDP, rose by a strong 9.1 percent. In contrast, gross capital formation contracted by 2.1 percent, dragged down by a 1 percent decline in construction, a sharp reversal from the 10.4 percent growth recorded a year earlier. UniCapital said this contraction in investment “emerged as the key drag” on overall growth.
On the production side, agriculture, forestry, and fishing rebounded with 3.1 percent growth in 2025 after contracting the previous year, but this was offset by a sharp deceleration in industry and services. Industry growth slowed to 1.5 percent from 5.6 percent in 2024, weighed down by a contraction in construction, while services growth eased to 5.9 percent from 6.7 percent, reflecting slower expansion in wholesale and retail trade and financial and insurance activities.
Looking ahead, UniCapital said near-term growth may remain constrained by lingering investment weakness, but reiterated that infrastructure execution will be decisive. “For 2026, we project GDP growth of 5.2 percent… assuming timely execution of public projects and clearer signals of governance and policy support,” the report said.
From an investment standpoint, UniCapital argued that much of the subdued growth outlook is already priced into the market. “We believe the market has largely priced in the subdued economic growth,” it said, pointing out that the PSEi is “the most undervalued index, trading at 9.7x P/E, nearly 40 percent below its 10-year historical average.”
With inflation stable and monetary policy expected to remain accommodative, UniCapital sees scope for a gradual re-rating, adding that infrastructure-linked and cyclical stocks may recover as spending normalizes, while “rate-sensitive sectors such as utilities, REITs, and high-dividend stocks could continue to benefit from policy support expectations.”