Worst of slowdown may be over for PH

The local economy is showing tentative signs of recovery following the sharp deceleration, as manufacturing activity returned to growth in December and government infrastructure spending resumed.

- By RICARDO M. AUSTRIA

In a report, Capital Economics economists Gareth Leather, senior Asia economist, and Jason Tuvey, deputy chief emerging markets (EM) economist, said the marginal expansion in the manufacturing sector suggests the worst of the recent downturn may have passed.

The London-based think tank noted that the Purchasing Managers' Index rebounded at the end of the year, aided by the government restarting key projects that had been stalled by a sweeping corruption investigation.

However, they also added that while the outlook is improving, the recovery remains fragile. The firm is forecasting gross domestic product (GDP) growth of 4.5 percent for 2026-a figure that sits well below the market consensus-before a projected acceleration in 2027. Inflation is expected to settle around three percent this year.

Weak economic activity and cooling price pressures prompted the Bangko Sentral ng Pilipinas (BSP) to reduce interest rates in December.

Capital Economics expects further easing in 2026, aligning the Philippines with regional peers like South Korea, Thailand, and Indonesia, though most central banks in the region are nearing the end of their loosening cycles.

The manufacturing sector's performance provides a much-needed reprieve. Data from S&P Global showed the manufacturing PMI rose to 50.2 in December from 47.4 in November. While the reading is only slightly above the 50-point threshold that separates expansion from contraction, it represents the first improvement in operating conditions since August.