Even though construction was among the key growth drivers of the Philippine economy in the third quarter of 2025, the capacity utilization of the industrial and construction sectors edged lower to 71.9 percent from 72 percent in the previous quarter.
“This is still below the historical average of 73.3 percent, a benchmark that has yet to be hit in the post-pandemic period,” Miguel Chanco, Pantheon Macroeconomics Chief Emerging Asia Economist, noted in a report published by Business World.
Based on available data, he said that the utilization rate hit a low of 66.8 percent in the third quarter of 2020.
“This rate has dipped and moved largely sideways ever since, indicating that the current rate of growth in the construction and industrial sectors continues to pose no real fundamental threat to inflation,” Chanco added.
“The outlook for construction looks bleak, the post-COVID catch-up is exhausted — it probably ended in the third quarter, as construction spending in the national accounts hit 98.7 percent of its pre-pandemic peak in the second quarter,” he explained.
GDP growth
The Philippines’ gross domestic product (GDP) expanded by an annual 6.3 percent in the April-to-June period, the fastest in five quarters or since the 6.4 percent in the first quarter of 2023, Business World noted, citing the latest data from the Philippine Statistics Authority (PSA).
This was faster than the revised 5.8 percent growth in the first quarter and 4.3 percent in the second quarter of 2023.
Among the main contributors to second-quarter GDP growth were construction (16 percent); wholesale and retail trade, repair of motor vehicles and motorcycles (5.8 percent), and financial and insurance activities (8.2 percent).
Still, the country's industrial sector is not operating at full capacity though this has helped tame price pressures, Pantheon's report stated.
“Underlying price pressures in the Philippine economy remain contained in more ways than one. One main aspect is the fact that heavy industry is still operating below ‘normal’ capacity,” Chanco's report said.
The latest data from the Bangko Sentral ng Pilipinas’ (BSP) Business Expectations Survey showed that the average capacity utilization of the industry and construction sectors edged lower to 71.9 percent in the third quarter from 72 percent, the previous quarter.
Philippine headline inflation sharply slowed to 1.9 percent in September from 3.3 percent in August and the slowest in over four years or since the 1.6 percent clip in May 2020.
In the first nine months, headline inflation averaged 3.4 percent, matching the central bank’s full-year forecast and falling within its 2-4 percent annual target.
Gross capital formation, the investment component of the economy, grew by 11.5 percent in the second quarter, faster than the 0.5 percent growth in the previous quarter and 0.7 percent, the previous year.
Public construction grew by 21.8 percent in the second quarter, faster than 12.1 percent a year ago as the government ramped up infrastructure and rehabilitation projects. Private construction also rose by 9.9 percent, faster than 5.3 percent in 2023, with commercial construction increasing by 13.6 percent.
PSA data on building permit applications showed decline of 2.4 percent in July to 14,343 from 14,689 a year ago.
Still lackluster
“Overall, business investment plans, while rising gradually, remain historically subdued. And their post-COVID recovery continues to be underwhelming, at least when juxtaposed against the last upswing after the Global Financial Crisis,” Chanco added.
Business sentiment in the construction sector was more optimistic in the third quarter this year amid new clients and contracts, easing inflation and more business opportunities and potential expansions, BSP data showed.
But the business sentiment for the fourth quarter was “less buoyant” due to expectations of a lack of new clients and fewer projects.
“The share of businesses which have expansion plans in the next quarter has risen to a new post-pandemic high of 21.7 percent as in the third quarter, according to our seasonal adjustment and on an annual rolling basis to smooth out quarterly volatility,” Chanco said.
“Keeping this in perspective though, it is still just 69 percent of its end-2019 level, a recovery rate that would fall to 61 percent if judged against the pre-pandemic high of the year before.”
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