Philippines faces economic pressure as global trade challenges mount

The country’s economic transactions with the rest of the world will come under increasing pressure as global trade headwinds intensify, a Fitch Group unit said.

“We now expect the Philippines’ external position to deteriorate as trade fragmentation and its knock-on effects on global demand will weigh heavily on exports,” BMI Country Risk & Industry Research said in a report released last Friday.

“This outlook is hardly surprising, given that key trading partners are facing mounting challenges,” it added.

BMI said the country’s current account — a measure of the flow of goods, services and income — was likely to see its current shortfall widen over the medium term compared to the historical average.

It was at 3.7 percent of gross domestic product (GDP) in the first quarter of 2025, nearly double from 1.9 percent a year earlier, and is expected to average 2.8 percent over the next three years compared to the 2015-2019 average of 0.4 percent.

The goods trade deficit was projected to expand to $90.5 billion by 2028, equivalent to 14.2 percent of GDP, from $68.6 billion in 2024 (14.9 percent of GDP), although a steady rise in services trade and remittance inflows will provide an offset.

The United States, which currently accounts for 16 percent of total Philippine exports, is expected to see economic growth slow to 1.7 percent in 2025 from 2.8 percent in 2024 due to high interest rates and policy uncertainty.

China — another major market — also continues to struggle with a prolonged property downturn that is expected to drag growth down from 5.0 percent in 2024 to a projected 4.8 percent in 2025 and 4.2 percent in 2026.

“Beyond the two economic giants, the global trade landscape is clouded by a rise in US tariffs, which we think will impact the global economy more negatively in the coming years,” BMI said.

The services sector, which has historically helped offset trade deficits, may provide limited relief. The Philippines commands about 15 percent of the global business process outsourcing market, contributing around 7.5 percent to GDP.

However, with weaker global demand for services, BMI warned that the sector would remain vulnerable.

Remittances, another key pillar of the external sector, are also forecast to slow. BMI noted that remittance growth historically tracks economic conditions in major source countries.

With slower economic growth expected in the US (40 percent of inflows), Singapore (7 percent), Saudi Arabia (6.2 percent), Japan (5 percent) and the United Kingdom (4.7 percent), inflows are likely to soften in 2025 compared to 2024.

BMI, however, projects a gradual improvement in the current account balance beyond 2029.

By 2034, the country is forecast to record a surplus equivalent to 0.8 percent of GDP, supported by continued growth in services exports and steady remittance inflows.

Source: Business World

BMI forecasts 6.3% growth for PHL in 2025

Further monetary easing is seen to prop up gross domestic product (GDP) growth in the Philippines, Fitch Solutions’ unit BMI said, as this would provide much-needed support to domestic demand.

“For the Philippines, we are expecting growth to accelerate from 5.8% in 2024 to 6.3% in 2025. The main driver is monetary policy loosening,” BMI Asia Country Risk Analyst Shi Cheng Low said in a webinar on Tuesday.

The government is targeting 6-8% GDP growth this year.

For the first nine months of 2024, growth averaged 5.8%. Preliminary fourth-quarter and full-year GDP data will be released on Jan. 30.

“Keep in mind that investment has been quite weak in the first quarter and third quarter. So about 150 basis points (bps) of cuts by the end of 2025 should help boost the Philippine economy going forward,” he added.

The Bangko Sentral ng Pilipinas (BSP) began its easing cycle in August last year, delivering 75 bps worth of cuts for 2024.

The central bank has signaled further easing this year as the current policy rate at 5.75% is still in “restrictive territory,” BSP Governor Eli M. Remolona, Jr. said.

Mr. Low said another growth driver is the rebound in private consumption as inflation continues to ease.

Headline inflation averaged 3.2% in 2024, within the 2-4% central bank target.

“We expect inflation to stay within the target for the rest of the year, obviously barring external shocks and also because the labor market has actually been improving,” he said.

This year, the BSP expects inflation to average 3.3%.

However, Mr. Low said their growth forecast for this year hinges on the expectation that US President-elect Donald J. Trump would not be aggressive in the implementation of his tariff proposals.   

“If that’s the case, we are going to lower our projections downwards. And I think that’s the biggest risk for the Philippines because the US is one of [its] biggest trading partners,” he said.

Mr. Trump, who is set to assume the presidency on Jan. 20, has pledged to impose import tariffs of up to 10% across the globe and 60% for Chinese goods.

“In sum, we expect the growth outlook to improve at least for the Philippines over the coming quarters,” Mr. Low added.

SERVICE BOOST

Meanwhile, HSBC in a separate commentary said the Philippines is expected to be one of the fastest-growing economies in Southeast Asia, mainly driven by a boost in services.

HSBC Global Private Banking and Wealth Chief Investment Officer for Southeast Asia and India James Cheo said the Philippine economy is “expected to deliver one of the strongest growths in the region this year.”

HSBC expects the Philippines’ GDP to expand by 6.3% this year and 6.7% in 2026.

“Philippine economic growth in 2025 will be driven by robust domestic consumption, a thriving business process outsourcing (BPO) sector, and increasing investments in digital services.”

“The country’s unique strength in service exports, including IT and BPO services, provides a buffer against global trade uncertainties and tariff risks.”

Data from the BSP showed the Philippines booked $37.4 billion worth of services exports in the first nine months, up 6.25% from a year earlier.

“Service exports and overseas remittances, which remain key economic pillars, will continue to contribute significantly to economic resilience and stability in the Philippines,” Mr. Cheo said.

He also said the country’s monetary and fiscal policies are “aligned to support growth while managing risks.”

Mr. Cheo said the central bank would likely deliver further rate cuts this year.

“We forecast the BSP to cut the policy rate to 5% in the third quarter of 2025, as it cautiously navigates external risks like potential volatility in the peso and the US Federal Reserve’s easing cycle.”

“On the fiscal side, the government’s infrastructure agenda remains a key growth driver, supported by revenue-enhancing measures,” he added.

Meanwhile, HSBC expects the peso to “face volatility from a stronger dollar but its high carry will be a buffer.”

“We are bullish on the peso and expect it to stay resilient at P59.8 against the US dollar by end-2025.”

The peso closed at P58.62 a dollar on Tuesday, strengthening by eight centavos from its P58.70 finish on Monday. Last year, the peso fell to a record-low P59-a-dollar level thrice.

MONETARY POLICY BUFFER

Meanwhile, Bank of America (BofA) Global Research in a separate report said economies in Southeast Asia might need to deploy varying policies to cushion the spillovers from Mr. Trump’s tariff plans.

“If trade shocks materialize, we reckon that the fiscal-monetary policy mix to cushion any softening of external demand may differ across countries,” it said.

“We think that policy mix may be more balanced in the case of Malaysia and Singapore, more skewed towards fiscal policies for Indonesia and Vietnam, and more skewed towards monetary policies for the Philippines and Thailand.”

For the Philippines, BofA said monetary policy “may have to play a greater role.”

“Inflation is at more manageable levels after the reduction of rice import duties in mid-2024, and BSP is less sensitive to FX (foreign exchange) movements compared with Bank Indonesia,” it said.

“As such, BSP could pursue deeper policy rate and RRR cuts. On the other hand, the government has less scope to raise spending significantly, with the fiscal deficit target for 2025 already above 5% of GDP and government debt at record high levels.”

Source: Business World

PH at risk from structural weaknesses, political row

Structural weaknesses and political volatility could pressure the Philippines' economic and fiscal performance, Fitch Ratings said on Wednesday.

The country's credit rating — an investment-grade "BBB" with a stable outlook — is being constrained by low GDP per capita, it also said in a report.

"Governance standards are weaker than at peers," the debt watcher noted, but added that World Bank indicators "somewhat overstate this."

Gross domestic product growth has slowed from a post-Covid pandemic rebound, it said, and will likely expand by 5.7 percent this year — up from 2023's 5.5 percent but below the government's 6.0- to 6.5-percent target.

Domestic demand will drive 2024 growth, Fitch said, and this will likely improve to 6.2 percent next year due to interest rate cuts, spending on infrastructure, and trade and investment reforms.

This outlook falls within the government's 6.0- to 8.0-percent goal for 2025 to 2028.

Fitch said the Philippines' rating reflected "strong medium-term growth" that would support the size of the economy — said to be large in relation to its "BBB" peers — and a gradual reduction in the debt-to-GDP ratio.

The latter is expected to fall from next year due to strong growth and lower fiscal deficits. The central government deficit was forecast to hit 5.7 percent of GDP this year and hit 4.9 percent in 2026 after averaging 5.1 percent as of end-September.

While higher than the government's target, these still are an improvement from 6.2 percent in 2023 and the 8.6-percent peak hit in 2021.

"Our narrower general government deficit forecast of 4.4 percent of GDP for 2024 reflects social security and local government surpluses," Fitch added.

It warned, however, that escalating political conflicts ahead of next year's midterm elections "could, if sustained, weigh on macroeconomic and fiscal performance."

Fitch noted that the support of Vice President Sara Duterte and her father, former president Rodrigo Duterte, was instrumental in President Ferdinand Marcos Jr.'s landslide win in 2022.

Both campaigned on a unity platform that clearly cracked this year with Sara — under investigation for misuse of public funds — threatening to have Marcos killed.

Externally, policies to be implemented by incoming US President Donald Trump pose risks for the Philippines along with other economies.

A further strengthening of the dollar from US trade protectionism could put further pressure on the peso, which has fallen nearly 5 percent as of October, and inflation.

"The Philippines would [also] be vulnerable to a change in US immigration policy, given the importance of remittances for domestic consumption," Fitch said.

Monetary policy, however, is a bright spot, and Fitch said that the Bangko Sentral ng Pilipinas had made strides in managing inflation, which at 3.2 percent as of end-November was down from 6.0 percent a year ago and within the 2.0 to 4.0 percent target.

"We forecast inflation to stay around these levels in 2025-2026, leading to a further 100 bps (basis points) of rate cuts in 2025," it said.

"A credible inflation-targeting framework and flexible exchange rate regime contribute to a sound economic policy framework and support the country's rating," Fitch said.

Source: Manila Times