Global growth and changing share in GDP

The Philippine Statistics Authority (PSA) released three important pieces of data: GDP performance in the second quarter (Q2) of 2025, which was 5.5%; the inflation rate in July, which was 0.9%; and the unemployment rate in June, which was 3.7%.

The GDP growth of 5.5% was the third fastest among the top 50 largest economies in GDP size that have reported their Q2 data so far. This is next to Vietnam and Taiwan that both grew by 8%. India has yet to release its Q2 data and it will likely be higher than the Philippines’.

The inflation rate of 0.9% was a six-year low for the country, and similar to Singapore’s 0.8%. It was lower than Malaysia’s 1.1%, Taiwan’s 1.5%, South Korea and India’s 2.1%, Indonesia’s 2.4%, Vietnam’s 3.2%, and Japan’s 3.3%.

Our unemployment rate of 3.7% was similar to Hong Kong’s 3.5% and lower than Indonesia’s 4.8% (March, no June data is available yet), or China’s 5% and India’s 5.6%.

The government’s economic team deserves praise as they are able to sustain the growth momentum while keeping unemployment and inflation rates at low levels.

[quote from the press statements of three Cabinet Secretaries.]

Finance Secretary Ralph G. Recto stated that: “The back-to-back good news — low inflation rate, vibrant labor market, and strong GDP growth — are very encouraging…. tuloy-tuloy po kami sa aming trabaho hangga’t ang ginhawa ay hindi lang nakikita sa datos, kundi nasa hapag, nasa bulsa, at nasa kinabukasan ng bawat pamilyang Pilipino. (We will continue with our work until the ease and relief is not only seen in the data, but also on the table, in the pocket, and in the future of every Filipino family).”

Budget Secretary Amenah F. Pangandaman optimistically projected that: “We anticipate growth to accelerate in the second half of the year and settle within the 5.5% to 6.5% target range by the end of the year, driven by strong domestic demand and sustained public investment.”

Economics Secretary Arsenio M. Balisacan summarized: “Our continued economic expansion reflects not only the success of our policies, but also the resilience, creativity, and determination of the Filipino people.”

I have compared the average Q1-Q2 growth of 2025 over the last two years, for major economies that have Q2 data already. The Philippines has the third fastest growth so far, while South Korea, Germany, and Austria are the laggards (see Table 1).

I was personally expecting growth of 6% in Q2, and other economists projected growth of 5.7-6%. What prevented the country from growing faster than 5.5%? To figure this out, I checked the PSA time series quarterly data from 2000 to 2025. I chose a five-year interval for both GDP demand side and GDP supply side.

On the demand side, household consumption was 77% of total GDP in 2005, and this declined to 71% in 2025. But while household consumption is still the largest component of GDP, its growth is decelerating. Government consumption, on the other hand, is rising, from 11% in 2005 to 17% in 2025, and growth is high at 14% in 2025. Investments or gross capital formation also increased its share, from 17% in 2005 to 24% in 2025, but growth is decelerating.

On the supply side or industrial origin, there has been a decline in Agriculture, fishery and forestry (AFF), from 14% in 2005 to 8% in 2025. Industry also declined, from 31% to 29%, while the services sector keeps expanding, from 55% to 63% over the same period.

Growth in both AFF and Industry is low while growth in services sector is high (see Table 2).

It is redundant to state this over and over again, but we have to keep growing fast, and we must attain an annual growth of 6% or higher for a decade at least. Both the industry and AFF sectors must grow faster than their recent performance, while the services sector only need to retain its high growth level.

More growth means more job creation and lower unemployment, more supply of goods and services, which all lead to lower inflation.

Source: Business World

Philippine economy seen to grow 5.8% in Q3 despite higher US tariffs

Philippine economic growth may pick up in the third quarter despite higher US tariffs and “milder” typhoons, the University of Asia and the Pacific (UA&P) said.

“Despite the Trump tariffs, milder typhoon season will help accelerate GDP expansion in Q3 to 5.8%, given a low base in 2024,” it said in its latest The Market Call released on Friday.

If realized, this would be faster than 5.2% in the third quarter of 2024 and 5.5% print in the second quarter. This forecast is also within the government’s revised 5.5% to 6.5% target this year.

“Consumer spending remains strong, aided by low inflation but limited by new US taxes on OFW (overseas Filipino Worker) remittances,” UA&P said.

Inflation cooled to a near six-year low of 0.9% in July as utilities and food costs continued to ease. This brought the seven-month average to 1.7%, slightly below the Bangko Sentral ng Pilipinas’ (BSP) 2-4% target band.

UA&P said government infrastructure spending may also regain momentum in the third quarter. This was after state spending slumped due to the 45-day election ban on public works spending from March 28 to May 12.

UA&P said residential construction will remain subdued due to elevated policy and interest rates.

The Bangko Sentral ng Pilipinas (BSP) has so far lowered borrowing costs by a total of 125 basis points (bps) since it began its easing cycle in August last year.  The policy rate now stands at 5.25%.

UA&P said the US dollar rate will “move either way” depending on rate cuts by the BSP and the US Federal Reserve.

“The peso-dollar rate has a fundamental depreciation bias although it will depend much on extent and timing of policy rate cuts by BSP and the Fed,” it said.

Meanwhile, UA&P said the outlook for the local bond market is better in the second semester.

“The local bond market heads towards a brighter second half with the deceleration of inflation, the National Government having raised all but less than 6% of its planned borrowing needs for 2025 and BSP planning 50 bps rate cuts between now and end-2025,” it said.

TARIFF-INDUCED SLOWDOWN

Meanwhile, ANZ Research said the Philippines may face more external pressures in the coming months, arising from US tariffs and a slowdown in the global economy.

In a report, ANZ said the Philippines’ services surplus has been moderating in recent quarters, as business process outsourcing and information technology exports remain resilient.

The services surplus narrowed to $3.3 billion in the first quarter from $4.2 billion in the fourth quarter.

“However, the IT-BPO (information technology-business process outsourcing) sector faces several risks in the near term. A tariff-induced slowdown in the global economy could dampen demand for outsourced services, particularly from the US, which is the largest consumer of Philippine IT-BPO exports,” ANZ said.

“If demand from US slows down, it could materially affect the Philippines’ services revenue.”

The IT-BPO sector is also dealing with the increasing adoption of artificial intelligence, as low-skilled workers are seen to be most vulnerable to displacement.

ANZ said the Philippines’ external accounts will face more challenges as goods exports demand is expected to weaken over the next few months.

“Though the Philippines’ exposure to US demand is relatively low, the wider impact of US tariffs on the global economy will affect its exports,” it said.

The US began imposing a 19% tariff on many goods from the Philippines on Aug. 7.

“Import demand stemming from private consumption is expected to remain subdued due to low wage growth, which is limiting purchasing power,” ANZ said.

ANZ said capital expenditure is likely to accelerate in the second half.

“Higher infrastructure spending typically translates to higher demand for capital imports for the Philippines, which will potentially further widen the trade deficit,” it said.

At the same time, ANZ said the 1% excise tax on remittances from the US is expected to have a “modest effect” on the country’s external accounts.

“This development is particularly relevant for the Philippines, given its heavy reliance on inward remittances from the US (about 40% of total remittances). It is also an important source of household income, consumption, and external account support. Remittances are a key component of the current account, helping offset the country’s persistent trade deficit,” it said.

The US will impose a 1% excise tax on cash-based remittances from the US to recipients abroad starting on Jan. 1, 2026. However, ANZ noted that since the new tax will be applied on cash-based remittances, its scope will be relatively limited.

“The Philippine Department of Finance estimates the total impact of the tax to be around $1.9 billion, which represents a small share of total remittances. As a result, while the effect on the Philippines’ external accounts is expected to be limited in 2026,” it said.

ANZ said a further slowdown in the US labor market will also affect the amount of remittances sent to the Philippines.

Money sent home by OFWs rose by 3.1% to $16.75 billion in the first six months of the year, with land-based workers contributing the bulk of the increase.

Source: Business World

Infrastructure spending rebounds in June

State spending on infrastructure bounced back in June, as disbursements for public works projects resumed after the election ban was lifted in early May, the Department of Budget and Management (DBM) said.

In its latest disbursement report on Thursday, the DBM reported that expenditure on infrastructure and other capital outlays increased by 6.5% to P148.8 billion in June from P139.7 billion in the same month last year.

Month on month, it increased by 20.2% from P123.8 billion.

This came after the month of May saw an annual 9.2% decline.

“This was largely attributed to the recovery of DPWH’s (Department of Public Works and Highways) spending performance following a two-month decline in April and May amid the election ban,” it said.

The Commission on Elections’ 45-day ban on public works spending started on March 28 and ended with the May 12 elections.

In June, the DPWH resumed payments for mobilization fees as well as made progress payments for newly awarded projects. It also settled outstanding obligations from previous years.

However, the DBM noted the pace of infrastructure spending was tempered by base effects from substantial releases for the Department of National Defense’s Revised Armed Forces of the Philippines Modernization Program in June last year.

The Philippines has been ramping up its military capacity under the $35-billion military modernization program since 2012 in response to rising tensions in the South China Sea.

The DBM said big-ticket releases for infrastructure are expected in the second half of the year.

Budget Secretary Amenah F. Pangandaman earlier explained that disbursements are expected to pick up toward the latter part of May to June after the 45-day election ban is lifted.

Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said that increased infrastructure spending is crucial for economic growth.

“(This will translate to) more inclusive economic growth and development, as better infrastructure boosts the economy’s productivity, as well as help attract more foreign tourists and more foreign investments/locators,” Mr. Ricafort said in a Viber message on Thursday.

For the first half of 2025, overall infrastructure and capital outlays disbursements inched up by 1.4% to P620.2 billion from P611.8 billion in the same period last year.

This was 0.1% or P800 million below the P621-billion program for the first semester.

“Although infrastructure expenditures posted a notable 20.8% (P45-billion) annual growth in first quarter this year, it contracted by 9.3% (P36.6 billion) in second quarter amid the election-related prohibition on public spending covering the entire month of April up to the first two weeks of May,” the DBM said.

Meanwhile, overall infrastructure disbursements, which include infrastructure components of subsidy or equity to government corporations and transfers to local government units, were flat at P720.3 billion in the January-to-June period from P720.5 billion a year ago.

It also exceeded the overall infrastructure spending program of P718-billion for the first half by 0.3%.

The DBM said growth in infrastructure transfers to local government units, particularly their development fund equivalent to 20% of the National Tax Allotment, was offset by lower National Government-implemented infrastructure activities and reduced subsidies to state agencies like the National Irrigation Administration (NIA).

Subsidies provided to state-run firms stood at P7.45 billion in June, 26.68% down from P10.16 billion a year earlier.

Budgetary support to the NIA plunged by 68.21% in June to P2.39 billion from P7.52 billion in the same period in 2024.

“Nevertheless, the total infrastructure spending for the first semester was registered at 5.3% of GDP (gross domestic product), in line with the 5.3% full-year target for this year,” it added.

Based on the 2026 Budget of Expenditures and Sources, the government set its full-year infrastructure spending program at P1.51 trillion, equivalent to 5.3% of the GDP.

In the following months, the DBM said line agencies are expected to ramp up requests for release of allotments for their programs, activities, and projects in the second semester as implementation activities normalize post-election ban.

“These may also include unutilized cash allocations from the second quarter that line agencies can still request this second semester so they can process payments and make disbursements to suppliers or contractors for completed and delivered goods or rendered services,” it said.

Among the anticipated spending drivers for the succeeding months are progress billings from multiple finished or partially completed road and transport infrastructure projects and releases for defense modernization program.

“Increased infrastructure spending at around 5%-6% of GDP for the coming years, as also seen in recent years, would still lead to sustained growth in infrastructure spending,” Mr. Ricafort said.

Source: Business World