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

Remittances likely to remain resilient for rest of 2025

Cash remittances are projected to remain resilient for the rest of the year, potentially surpassing the Bangko Sentral ng Pilipinas’ (BSP) 2.8% full-year growth target, analysts said.

However, they also warned of possible external shocks that could dampen remittance growth.

“We’re on track. First-half growth hit 3.1%, already above BSP’s 2.8% forecast,” Jonathan L. Ravelas, a senior adviser at Reyes Tacandong & Co., said.

“If global labor markets stay resilient and the peso remains competitive, we could even beat the (BSP’s) 2.8% full-year target.”

Money sent home by overseas Filipino workers (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.

The BSP is targeting a 2.8% growth in remittances this year, and 3% growth for 2026.

Remittance inflows are expected to accelerate ahead of the holiday season, analysts said.

“We expect remittances to remain a constant and reliable source of foreign currency over the next few months, with a seasonal acceleration as we enter the fourth quarter of the year,” Metropolitan Bank & Trust Co. (Metrobank) Chief Economist Nicholas Antonio T. Mapa said.

Ruben Carlo O. Asuncion, chief economist at Union Bank of the Philippines, Inc., said the BSP’s full-year target of 2.8% remittance growth is “well within reach.”

“Remittance flows are expected to remain resilient, supported by seasonal inflows during the ‘ber’ months and improving global labor conditions,” he said.

Analysts warned the US government’s 1% tax on remittances, which will take effect on Jan. 1, 2026, will have a dampening effect on remittances from US-based Filipinos.

“However, the proposed 1% remittance tax in the US could pose downside risks in 2026. While the BSP’s 3% growth target remains achievable, the tax may dampen inflows from the US — currently the largest source — unless mitigated by digital remittance innovations or policy support,” Mr. Asuncion said.

The tax will be applied on cash-based remittance transfers from US-based senders, regardless of citizenship status.

BSP data showed the US remained the top source of remittances to the country in the first half, accounting for 40.1% of total remittances for the period.

“The proposed 1% US remittance tax could dampen inflows (from formal channels) slightly if implemented, but its real impact will depend on scope, implementation, and possible offsets from fintech cost reductions or regulatory responses,” John Paolo R. Rivera, a senior research fellow at the Philippine Institute for Development Studies, said in Viber message.

Mr. Ravelas said the proposed tax is a “red flag,” as it might encourage senders to use informal channels.

“That’s a red flag. The US sends over 40% of our remittances. A 1% tax could dampen flows or push senders to informal channels,” he said. “We’ll need to watch how it’s implemented and prepare support mechanisms for OFWs.”

Mr. Mapa said OFWs have been “creative” in finding ways to send money back home in the past.

“We could still expect remittance flows to remain robust in the near term,” he said.

Meanwhile, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort noted US protectionist policies and stricter immigration rules could weigh on remittances from the US.

“Trump’s threats of higher reciprocal tariffs and other America-first policies could also slow down global trade, investments, employment including some OFW jobs, and overall world economic growth,” he said in an e-mail. “This could also indirectly slow down the growth in OFW remittances from other countries around the world.”

Source: Business World

GDP growth may miss top-end goal

Philippine economic growth is unlikely to reach the upper end of the government’s 5.5-6.5% target this year amid higher US tariffs and slowing remittances, analysts said.

Foundation for Economic Freedom President Calixto V. Chikiamco said hitting the 6.5% mark is “possible, but improbable.”

“More so with [US President Donald J.] Trump tariffs on our key exports and a global economic slowdown,” Mr. Chikiamco said.

The economy grew by an annual 5.5% in the April-to-June period, supported by a rebound in agriculture production and faster household consumption.

For the first half, gross domestic product (GDP) growth averaged 5.4%, slower than the 6.2% a year ago.

Economic Secretary Arsenio M. Balisacan said the economy must grow by 5.6% in the second half to achieve the low end of the full-year target, and by 7.5% to hit the upper end of the goal.

“However, if the administration keeps its same steady as you go approach, the likelihood is that not only will the government fail to reach its minimum 6% growth target, but actually achieve less than 5.5% growth,” Mr. Chikiamco said.

John Paolo R. Rivera, a senior research fellow at the Philippine Institute for Development Studies, said the required 7.5% average growth in the July-to-December period is a “stretch goal but not impossible.”

“It will require strong export performance despite global headwinds, faster infrastructure rollout after the election spending ban, and sustained household and investment spending,” he said in a Viber message over the weekend.

Mr. Trump imposed a 19% export levy on goods from the Philippines, as well as Cambodia, Malaysia, Thailand, and Indonesia. This took effect on Aug. 7.

“With the tariff rate on the Philippines’ goods being in line with other ASEAN (Association of Southeast Asian Nations) emerging markets, the Philippines risks losing the opportunity of increasing its market share in the US,” HSBC economist for ASEAN Aris D. Dacanay said.

Mr. Dacanay said the strong growth in exports is unlikely to be sustained in the next semester.

“But unlike private consumption, we do not think this strong performance will be sustained. The robust performance was a result of frontloading of import demand across the globe in anticipation of higher US tariffs,” he said.

However, BMI said Philippines is well-insulated from the US tariffs “exports-wise,” but there is a possibility of Mr. Trump raising the tariffs if the Philippines fails to spend at least 5% of its GDP on military spending.

“If Trump threatens a higher tariff because of the nonfulfillment, we anticipate a further slowdown in export growth for the Philippines,” BMI said.

Mr. Rivera said he expects softer export growth, especially for sectors like electronics, garments, and agriculture.

“However, the full effect will likely be gradual, as existing orders and contracts still work through the pipeline,” he said.

“The extent of the slowdown will depend on how fast exporters can adjust either by negotiating better terms, shifting to other markets, or moving up the value chain.”

REMITTANCE SLOWDOWN

Analysts said slowing remittances from overseas Filipino workers (OFWs) may hurt consumer spending in the second half.

“A slowdown in remittances will weigh on private consumption while heightened global uncertainty will continue to chill,” Fitch Solutions’ unit BMI said.

Household final consumption, which accounts for over 70% of the economy, jumped by 5.5% in the second quarter. It was the fastest since the 8.1% growth in the first quarter of 2023.

BMI sees private consumption to grow by 5% in 2025.

“About 40% of remittances come from the US and President Donald Trump has clamped down on immigration and imposed a 1% tax on remittances. Remittances, therefore, are likely to continue dragging on consumption growth in the coming months, diminishing the positive effects of easier monetary policy,” BMI said.

The Bangko Sentral ng Pilipinas (BSP) expects cash remittances from OFWs to grow by 2.8% this year and by 3% in 2026.

The US will start imposing a 1% excise tax on cash-based remittances from the US to recipients abroad on Jan. 1, 2026.

BMI said it kept its GDP forecast at 5.4% for this year, but lowered its 2026 projection to 5.2% from 6.2% for 2026 due to slower remittances and tariff uncertainty.

“The upshot is that we maintain our relatively downbeat forecast for fixed investment to expand by 4.5% in 2025, well below the 12.4% over 2015-2019,” it said.

Nomura Global Markets Research said GDP growth will likely slow to 5.2% in the second half but kept its full-year forecast at 5.3%.

“We believe private investment spending will be more subdued, as businesses turn more cautious owing to surging global trade policy uncertainty and an increasingly challenging operating environment,” Nomura said.

“In the same vein, we expect goods export growth to slow due to the impact of US tariffs but acknowledge rising downside risks particularly from sectoral tariffs on semiconductors in the coming quarters.”

Last week, Mr. Trump announced plans to impose tariffs on semiconductors shipped to the US but offered to exempt companies manufacturing in the US or those that commit to do so, Reuters reported.

Meanwhile, Chinabank Research said it expects growth “to remain modest” as external prospects may remain subdued, given persisting uncertainties and rapidly changing global policies.

“Moving forward, downside risk to growth will be centered on external trade as elevated policy uncertainty and higher tariffs weigh on global economic activity,” it said in a policy note on Thursday.

On the demand side, Chinabank anticipates that government spending will likely continue to quicken for the rest of the year.

“We could see a rebound in the coming quarters as the government ramps up delayed projects and as the effects of interest rate cuts further materialize.”

Nomura said it expects the BSP to cut its policy rate by 25 bps at its Aug. 28 meeting and by another 25 bps in October.

“This would take the policy rate to 4.75% this year, which we think puts BSP’s monetary stance below its estimate of neutral, though we see some risk that BSP might deliver more in 2026 if inflation remains well within its 2-4% target,” Nomura said.

“We continue to believe BSP remains on a path of a steady shift to a more accommodative stance, given the benign inflation outlook.”

Meanwhile, Mr. Dacanay said with government infrastructure spending and services exports underperforming, further monetary easing could be needed to help sustain growth.

“Quickening and deepening the ongoing easing cycle will help support both sectors. Lower interest rates can help incentivize further investments, while it can also help improve or at least maintain the competitiveness of the services exports sector via the FX (foreign exchange) channel,” he said.

Source: Business World