We’re in deep doo doo

Last Friday, the Philippine Statistics Authority (PSA) reported some grim statistics showing that our GDP grew by only 2.3 percent year-on-year for Q2 2026, marking the weakest quarterly performance in 17 years outside the pandemic.

The details behind the numbers are worrisome. Major sectors of our economy are in trouble. And there are no reasons to believe we will be able to pull off a miracle by year-end.

The Makati Business Club pointed out that consumption, investment and production met mounting pressure. Weaker household spending, a sharp reduction in investment, a contraction in industry and rising electricity costs weighed on business confidence.

The industry sector was a major drag that pulled down the GDP numbers. There was a contraction in public infrastructure, estimated by bankers at roughly 43.4 percent year-on-year during the quarter.

On the demand side, gross capital formation (overall investments) plummeted by -9.2 percent due to high borrowing costs and delayed government projects.

The good news is that education posted a growth of 12.7 percent, showing money is now flowing into a neglected but extremely important sector.

Otherwise, it doesn’t look like things will begin to look up soon. Our political leaders are still focused on political theater and are unlikely to effectively address core issues like rising food prices.

Meanwhile, other government officials are afraid to disburse money after the ghost flood-control scandal. Private investors are also hesitating because political risk has increased considerably.

Political risk is now freezing economic activity. Foreign and domestic investors have adopted a wait-and-see attitude.

Some analysts say the convergence of economic stagnation and intense political fragmentation is rapidly steering the country toward an institutional tipping point before the 2028 presidential election.

Rather than a dramatic “collapse,” macroeconomists and political analysts think this tipping point will manifest in a severe institutional gridlock. If structural issues are left unchecked, state operations can be paralyzed and severely damage the country’s investment profile.

But Filipinos will not march out in the streets because the GDP numbers dropped or because of political in-fighting. As we saw, even the attempt of INC and Duterte partisans to stir up a new EDSA uprising failed.

If street protests happen at all, it will be driven by household survival.

With poverty inching back toward the 20 percent level and inflation for the poorest 30 percent of families stuck at eight percent, daily economic survival is getting harder.

The administration’s sporadic social dole-outs and subsidies are useless in helping meet continually rising rice and utility costs. Public discontent could hit a critical mass before the 2028 campaign begins.

The Philippines relies heavily on household consumption to drive its economic engine and it slowed down significantly. Consumer purchasing power was severely eroded by prolonged high inflation and elevated electricity and transport costs.

Add softening OFW remittances and an uptick in unemployment (4.9 percent), and that explains dampened household purchasing power.

The sharp year-on-year increase in unemployment by nearly 640,000 in a year (from 1.95 million to 2.59 million) compounded by high underemployment at 12.1 percent (6.11 million workers), has stripped away the primary source of income for hundreds of thousands of households.

A consumer survey (Roland Berger) highlights a drop in local consumer confidence from 53 percent down to 35 percent, making shoppers increasingly price-conscious, prioritizing value for money as they navigate tighter budgets.

The PSA reported that the Wholesale and Retail Trade sector suffered the largest annual job loss, shedding a massive 903,000 workers year-on-year.

The construction slump caused the sub-sector to shed 139,000 jobs. This decline aligns with the demand-side collapse of gross capital formation (-9.2 percent) and the -2.4 percent contraction within the industry sector caused by frozen infrastructure projects.

As unemployment stripped away income sources, stubbornly high prices eroded whatever purchasing power remained for employed families. The combination of high headline inflation and rising core inflation created a massive “double-whammy” that crippled the country’s economic engine.

The drop in headline inflation also means nothing for ordinary families. For the bottom 30 percent income households, inflation remained brutally high at eight percent in July.

That’s because rice inflation hovered at a staggering 15 percent and the poor spent around 60 percent of their disposable income on food, wiping out their discretionary spending. That explains why household consumption growth collapsed to just 2.8 percent.

What worries policy makers at BSP is rising core inflation that’s getting sticky. While headline inflation captures the immediate shock of a sudden oil price increase or the effects of bad weather on food crops, it may be temporary. Core inflation is different.

When core inflation hit a 31-month high of 4.4 percent in June 2026, it showed that price increases had become deeply embedded across the wider economic system.

As a result, the BSP has to maintain a restrictive policy stance, raising the key interest rate. High borrowing costs made loans expensive for corporations and curtailed investments.

This explains why gross capital formation (which shows how much new wealth a country is investing for future production rather than consuming) plunged by -9.2 percent and the industry sector contracted by -2.4 percent. Businesses froze expansion plans and public-private infrastructure construction slowed down.

Then, there is rising national debt which is now at a record P18.9 trillion.

For the 2026 fiscal year, the government must pay P1.055 trillion on principal debt (amortization), bringing the total programmed debt service bill to P2.005 trillion with a massive P950 billion for interest payments alone.

Debt servicing is an automatic, non-negotiable deduction from public funds before a single peso can be spent on schools, hospitals or roads. Debt servicing is rerouting to banks and buyers of our debt papers the productive capital needed to fuel the economy.

But our officials are nonchalant and still insisting on short term and unsustainable responses. That’s our problem… That’s why we’re in deep doo doo.

Boo Chanco’s email address is [email protected]. Follow him on X @boochanco