The Philippine economy grew 2.1% in the third quarter from a year earlier, the Philippine Statistics Authority (PSA) said on Monday, short of the 3.0% that economists had forecast in a Reuters poll and slower than a revised 2.4% in the second quarter.

The figure compares with 4.0% growth in the same quarter of 2025. It was the fifth straight quarter of slowing growth, the longest such run since 2011, according to Insider PH. For investors in Manila and across the region, the reading sharpens a dilemma for the Bangko Sentral ng Pilipinas (BSP): demand is fading at the same time that inflation is running at its fastest pace in nearly four years.

On a seasonally adjusted basis, output rose just 0.1% from the second quarter, down from 0.6% growth in the previous three months, Reuters reported. The government had revised second-quarter growth to 2.4% from 2.3% on Friday. Growth for the first nine months of the year was 2.5%, according to GMA News.

The Philippine Stock Exchange index fell 0.29% to 5,745.41 in early trade on Monday after the release, Insider PH reported.

Farms and construction drag on Philippine growth

Agriculture, forestry and fishing shrank 4.8%, the biggest drag on growth, as storms and the southwest monsoon disrupted planting and harvests. Palay, or unmilled rice, and corn output fell more than 17%, Economic Planning Secretary Arsenio Balisacan said, which cut rural incomes and added to food supply pressure. "Three factors explain the weakness," he told reporters, pointing to high food and energy prices, farm disruptions and weak investment, according to GMA News.

Industry was flat. Public construction declined for a sixth straight quarter as investigations into flood-control projects, which began in late 2025, slowed infrastructure spending, The Philippine Star reported. The pace of that decline eased to 15.1% from 33.4% in the second quarter, GMA News said. Private construction barely grew, and investment in durable equipment fell 7.8%.

Services, the largest part of the economy, grew 3.7% and contributed 2.5 percentage points of the headline figure. Wholesale and retail trade, including motor vehicle repair, added the most of any industry at 0.8 percentage point, according to The Philippine Star. Public administration and defense rose 9.9%, while financial and insurance activities grew 3.47%, Insider PH reported.

There were small signs of stabilization in the quarterly numbers. On a seasonally adjusted basis, construction rose 6.9% from the second quarter, public administration and defense 2.8%, and financial and insurance services 1.5%, according to Insider PH. Those gains were not enough to lift overall output by more than a fraction of a percent, and the publication tied the broader slowdown to the flood-control scandal, persistent inflation and an uncertain global outlook weighing on consumer and business confidence.

Household spending, the main engine of Philippine demand, rose 2.4%, down from 2.9% in the second quarter. Gross national income grew 2.7%.

The bright spot was trade. Exports of goods and services grew 8.6%, and electronics exports jumped 19.4% on demand for products tied to artificial intelligence, GMA News reported. Business services exports also picked up.

Inflation leaves the BSP little room

Weak growth would normally argue for lower interest rates. The BSP has been moving the other way. It raised its policy rate by 25 basis points to 5% in August and by 50 basis points to 5.5% in October, after the quarter ended, as fuel costs linked to the Middle East conflict fed into transport, power and production costs.

Headline inflation reached 7.8% in October, driven by energy and transport. Markets expect another increase at the BSP's last policy meeting of the year on Dec. 17, The Philippine Star reported.

Balisacan said tighter financing conditions had weighed on investment during the quarter. He argued that higher rates could still help consumption and investment over time "if the BSP succeeds in anchoring inflation expectations" back to its target, according to The Philippine Star.

For the central bank, the third-quarter data show an economy expanding at roughly half its pace of a year ago, with household spending slowing and private investment stalling. Any further rate increase in December would land on that weaker base. The next major data point before the meeting is November inflation, which the PSA is scheduled to publish in early December.