INFRASTRUCTURE spending in the Philippines will likely remain below 5% of gross domestic product (GDP), as weak sentiment and lingering external shocks constrain public investment, Moody’s Ratings said.
At the same time, the credit watchdog expects a “broader recovery” in public investment once the global energy shock fades.
“We do expect a broader recovery on public investment, and we’ll still need the initial recovery starting next year, probably. As the execution of public disbursement normalizes, there’s budget transparency, accountability…” Moody’s Ratings Assistant Vice-President for Sovereign Risk Group Young Kim told a panel during the launch of Moody’s Corp.’s strategic investment in PhilRatings on Wednesday.
“However, we do understand that spending is unlikely to return to above 5% of GDP on public investment. We understand that a lot of work will have to be done from the PPPs (public-private partnerships) and the private sector,” he added.
Infrastructure spending fell year on year for the 14th month in a row, declining by 16.9% to P70.5 billion in August from P84.9 billion, the latest Department of Budget and Management data showed.
In the first eight months of the year, infrastructure spending dropped by 34.6% year on year to P522 billion. The full-year program is at P931.54 billion, 15.1% lower than the P1.1-trillion actual infrastructure spending in 2025.
Infrastructure spending is projected to climb by 4.6% to P974.48 billion next year.
“Even if the public investment disbursement recovers gradually next year, as I mentioned… I think the government’s targeting around 4% (of GDP) at least in the near term,” Mr. Kim told BusinessWorld on the sidelines of the event.
“And hoping that they’re going to divert some of that spending to the social, right? But also to crowd in private investment and PPP, especially when they revise some of the PPP Code and some of the enacted reforms. So, I think that’s the idea of our current baseline,” he added.
Mr. Kim noted that the country’s investment climate should improve on the back of the government’s recent reforms on the PPP Code and the Corporate Recovery and Tax Incentives for Enterprises to Maximize Opportunities for Reinvigorating the Economy Act.
However, a more credible recovery would depend on quick investment returns, progress on lowering energy costs, and improving the ease of doing business, Mr. Kim added.
Moody’s Ratings is anticipating only a gradual economic recovery rather than a sharp one, partly because investment is projected to rebound slowly.
“We’re still stable on the outlook, which means that we do know that the interim risks are tilted to the downside on the growth side, with much weaker growth last year (and) this year,” Mr. Kim said.
“But we do see these shocks as more cyclical, which means that starting from next year — partly from base effect, but also from some of the energy prices easing throughout 2027 — our baseline expectation [is] that there’s a gradual pickup on the public investment,” he added.
According to Mr. Kim, such investment recovery might not be enough to bring the economy back to its full potential by next year, with its negative output gap expected to persist.
Even so, it could still drive economic growth to the bottom end of the government’s target in 2027, he added.
Moody’s Ratings sees the Philippine economy settling at 3.3% this year, below the government’s goal of 3.5%-4.5%.
It then sees GDP growth hitting the government’s target of 5%-6% at an average of 5.1% next year.
SECTORS EXPOSED TO SHOCKS
Meanwhile, the local property development, food and beverage, and oil sectors emerged as the most exposed to the recent oil crisis-driven economic shocks, according to domestic credit rating agency Philippine Rating Services Corp. (PhilRatings).
PhilRatings Vice-President and Head of Credit Rating Bertrand Gil C. Indiongco said demand in three sectors has suffered since the Middle East war pushed up prices and squeezed consumers’ appetite.
“So, for property development, (it requires) such a big investment for our consumers, they have tended to fall back in terms of spending on such big purchases. And as I mentioned, that has affected the demand side for houses, which is currently under pressure from the reported oversupply in the National Capital Region,” the PhilRatings official said.
“Apart from that, we’re also seeing, of course, margins being compressed by increasing costs for infrastructure. So, property companies are being compressed on both sides — demand and supply side,” he added.
On the other hand, Mr. Indiongco noted that demand in the food and beverages industry is relatively stable.
However, companies in the sector are suffering compressed margins as they face pressure to maintain their prices even as costs rise.
“And finally, for fuel and oil — while we do have big price increases, the volume has also been affected because people are just scaling back on nonessential travel,” he said. “And that has affected volumes since the first half of 2026. And even if we could increase prices, it’s not enough to keep margins (from being) compressed.” — Katherine K. Chan