HSBC slashes PH growth outlook as corruption hits spending

The impact of corruption concerns on infrastructure spending will likely drag economic growth to below government targets for both 2025 and 2026, the Hongkong and Shanghai Banking Corporation Ltd. (HSBC) said Tuesday.

According to HSBC ASEAN economist Aris Dacanay, the Philippine gross domestic product (GDP) is now seen to have grown by an average of 4.7% in 2025, slower than the previous outlook of 5.4%, and lower than the downgraded 5.5% to 6.5% target of the Development Budget Coordination Committee (DBCC).

"Due to institutional reform and higher scrutiny of public spending, it will be very difficult. It will be a tall order to meet our targets," he told reporters in a briefing in Taguig City.

"I think a lot of market players are already expecting the worst as people expect the process of institutional reform, the process of increasing due diligence in public infrastructure spending will eventually, though good, will eventually drag growth. I think that's highly expected," he added.

This comes as both chambers of Congress look into alleged irregularities in public works spending, after President Ferdinand "Bongbong" Marcos Jr. in August disclosed that 20% of the total P545-billion budget for flood control projects went to only 15 contractors, which he described as a "disturbing assessment."

Economic growth averaged 5.0% in the first three quarters of 2025, with Dacanay noting that this could slow to below 4.0% in the fourth quarter if public infrastructure spending continued to dip in November and December after falling by 40% in October.

'Very unlikely'

For his part, Department of Economy, Planning, and Development (DepDev) Secretary Arsenio Balisacan earlier conceded that the Philippines is "very unlikely" to meet the already downgraded growth target range of 5.5% to 6.5% for 2025.

"That causes a lot of concerns for the Filipinos, whether this drag in fiscal spending will translate to slower domestic private demand. I think that will be a challenge for 2026," Dacanay said.

Dacanay also downgraded his economic growth outlook for 2026 to 5.2% from 5.8% previously, also due to the lower public works spending, and lower consumption.

This is also below the government's already downward-revised target range of 5.5% to 6.5%.

"There are around 4.5 million jobs in construction. A lot of the growth in construction was driven by the Build, Build, Build program so the reversal of any aggressive spending in public infrastructure will provide uncertainty to the 4.5 million jobs, which represent 10% of the labor force," he said.

"I think that's a big deal. I'm not saying that jobs will be lost, but I think uncertainty alone can incentivize households to save even beyond what they saved compared to the pre-pandemic levels. From a loaner's end, confidence will likely return by the second half," he added.

Slower consumer spending

Dacanay said consumption is expected to continue increasing this year, albeit slower this year even as wages increase, due to households reining in their spending to prepare for uncertainties ahead.

"Because of consumption increasing, we do expect the current account to improve drastically with less import demand of capital because of less infrastructure spending, less imports of consumer goods, and also for the onset of a weaker peso, I think households will buy more local goods, but also at the same time, buy less goods overall," he said.

In terms of monetary policy, Dacanay expects the Monetary Board of the Bangko Sentral ng Pilipinas (BSP) to cut rates by another 25 basis points in its meeting on February 19, 2026, the first for the year.

The target reverse repurchase rate is currently set at 4.50%, the overnight deposit rate at 4.00%, and the overnight lending rate at 5.00%, the lowest in three years since September 2022.

"I think 4.25% is the floor, that is our baseline scenario, but if the Fed were to cut deeper, current market pricing is also forecasting some cuts with the Fed. If that is the case, I think there is room for the BSP to cut," Dacanay said. — VDV, GMA Integrated News