The Philippine economy lost momentum in the third quarter, recording a markedly weaker performance than analysts had anticipated. Yet economists expect the slowdown to be short-lived, with an improvement in domestic demand likely to lift activity in the months ahead, a note from Capital Economics reports.

Official data released on November 13 showed that gross domestic product expanded by 4% year on year in the three months to September, down from 5.5% in the previous quarter and well below market expectations - Reuters had forecast 5.2%, while Capital Economics accurately projected 5.5%. On a seasonally adjusted basis, quarterly growth eased to 0.4% from 1.5% in the second quarter.

The loss of momentum was driven largely by a softening in domestic demand. Household consumption growth slowed to 0.5% quarter on quarter, compared with 1.5% previously, while both fixed investment and government consumption contracted for the second consecutive quarter.

Analysts nevertheless expect spending at home to gather pace. Although tighter fiscal policy will continue to restrain public expenditure, a combination of subdued inflation, an easing in monetary conditions, rising capacity utilisation across manufacturing and a robust pipeline of residential construction point to a firmer outlook for private-sector demand.

Exports, meanwhile, returned to positive territory, buoyed by a modest recovery in services. Goods exports, however, lost steam. Global demand is expected to remain soft, but the Philippines’ reliance on domestic drivers of growth should mitigate the drag from weaker external conditions.

While activity is still expected to accelerate over the coming quarters, the disappointing third-quarter figures have prompted a reassessment of full-year expectations. Capital Economics now judges its earlier forecast of 5.5% growth in 2025 to be overly upbeat, and has revised its projection to 5%. The risks, it cautions, are skewed firmly to the downside, with the most immediate concern arising from the political fallout of ongoing anti-corruption protests.