PHL shows solid growth momentum

The Philippines’ growth momentum remains “broadly stable,” even as global trade tensions would make it hard to hit the 6-8% growth target in the next two years, an Organisation for Economic Co-operation and Development (OECD) economist said.

“The Philippines continues to show very solid growth momentum, supported by domestic demand and somewhat by public investment,” OECD economist Cyrille Schwellnus said at a briefing on Wednesday.

In its latest Economic Outlook, the OECD projected below-target growth for the Philippines for 2025 and 2026. It sees the Philippine economy growing by 5.6% this year, and picking up to 6% in 2026.

Mr. Schwellnus cited robust labor market and election-tied expenditure as main drivers of growth.

“But investment is going through a soft patch, growing well below its average over the past three years. Exports, again, are growing at a healthy pace. But we expect that to weaken on the back of escalating global trade tensions,” he said.

In April, the US slapped higher reciprocal tariffs on most of its trading partners’ goods exports, though this has been suspended until July, except for the baseline 10% which still remains in effect. The US slapped the Philippines with a 17% reciprocal tariff, the second lowest among its neighbors.

Mr. Schwellnus said the government’s 6-8% growth target is “perfectly attainable” in the medium term.

“But in the very short term, in 2025, 2026, we see [the target] as difficult to reach,” Mr. Schwellnus said.

In the first quarter, gross domestic product (GDP) grew by a weaker-than-expected 5.4% amid heightened uncertainty arising from the Trump administration’s tariff policies.

“Now in 2025, we have additional headwinds, especially from the external side, so a slowdown of global trade, but also on the domestic side, where we see some fiscal consolidation going on over the next couple of years,” Mr. Schwellnus said.

The OECD cut its global growth outlook to 2.9% in both 2025 and 2026, noting that “substantial barriers to trade, tighter financial conditions, diminishing confidence and heightened policy uncertainty are projected to have adverse impacts on growth.”

The OECD noted the possible impact of the global economic slowdown on remittances from overseas Filipino workers.

“If there were to be a larger-than-expected slowdown in major economies, such as the US or China, that would, of course, have an effect on exports of the Philippines, and it might also impact remittance flows, which would then impact domestic consumption and investment,” Mr. Schwellnus said.

However, the OECD said the impact on remittance flows was not accounted for in its growth projection for the Philippines.

Mr. Schwellnus said the Philippines can immediately implement reforms, especially to reduce barriers to foreign direct investment.

In the same report, the OECD projected that inflation would settle at 2% this year and 3.1% in 2026 “amid balanced domestic demand and currency stability.”

“Looking ahead, we expect inflation to gradually return to 3% as food prices stabilize and monetary policy continues to ease,” he said.

BSP Governor Eli M. Remolona, Jr. earlier said cooling inflation has given them “plenty of room” to cut rates this year. Mr. Remolona said they could deliver two more rate cuts this year, in “baby steps” of 25 basis points.

SERVICES UNAFFECTED

Meanwhile, the Philippines’ services sector is unlikely to be impacted by the US tariff policies, S&P Global Ratings said, though the industry could eventually face strains in the coming years.

“In the Philippines, the story is more nuanced. The Philippines is active in the export of certain things. One is services, especially business process outsourcing. It is a big factor for the Philippine economy,” S&P Global Ratings Senior Economist Vishrut Rana said in a webinar.

The service sector will likely be sheltered from the initial impact of the trade tensions, he said.

“One element of shelter is that for services. Trade seems to be unaffected by the tariff measures for the time being. It could come under pressure over the next few years,” he added.

United States President Donald J. Trump’s reciprocal tariffs have only covered goods, not services.

Meanwhile, the credit rater also noted that the Philippines’ electronics exports are also spared for the time being.

“The Philippines is also a significant player in the electronic supply chain in Asia and the Pacific (APAC). However, for the time being, it doesn’t seem to be a focus area,” Mr. Rana said.

The US’ reciprocal tariffs will not apply to certain goods, such as semiconductors, copper, pharmaceuticals, gold, and minerals that are not available in the US, according to the White House’s April 2 tariff announcement.

Electronic products were the top commodity export of the Philippines last year, accounting for more than half or 53.4% of its total exports.

“On broader trade, there could be some pressure on the electronic space. We are watching that at the moment,” Mr. Rana said. “For now, the APAC electronic sector is performing relatively well, which is supporting the sector in the Philippines also.”

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Source: Business World

Filipino students among the worst in creative thinking — OECD study

Fifteen-year-old students in the Philippines are among the worst in creative thinking, according to the latest study by the Organization for Economic Cooperation and Development (OECD).

The Philippines ranked 63rd  out of 64 countries in a 2022 global assessment by the OECD that ranked 15-year-old students worldwide in producing and evaluating original ideas that would translate into effective solutions.

In the 2022 Programme on International Student Assessment (PISA) Volume III published late on Tuesday, the Philippines’ mean score in creative thinking score stood at 14, which was way below the global average of 33.

The Philippines’ score was only better than Albania which had a score of 13.

Singapore topped the list with a score of 41, followed by South Korea and Canada which both scored 38.

The rest of the top 10 included Australia (37),  New Zealand (36), Estonia (36), Finland (36), Denmark (35), Latvia (35) and Belgium (35).

The OECD study was conducted in 2022 with about 690,000 15-year-old students from 66 countries.

“Many countries and economies score at similar levels in creative thinking. Small differences that are not statistically significant or practically meaningful should not be considered,” the OECD said in the assessment.

The OECD said one in four students in the Philippines, Morocco and Saudi Arabia said they found learning new things boring.

Students from the Philippines also did not provide a response for over a fifth of all items in written problem-solving tasks in the assessment.

OECD said that less than three for every 100 students in the top five performing countries of Singapore, South Korea, Canada, Australia and New Zealand performed around or below the average of the weakest performing countries or the Dominican Republic, Uzbekistan, the Philippines and Albania.

In PISA’s 2022 assessment for student performance in mathematics, reading and science, Filipino students were among the world’s weakest in those subjects, ranking 77th out of 81 countries and performing worse than the global average in all categories.

“Beyond preparing students for the labor market, creative thinking in education contributes to students’ holistic development — it supports learning, problem solving and metacognitive skills through exploration and discovery, helping students to interpret information in personally meaningful ways,” the OECD said.

“Creative thinking helps prepare young people to adapt to a rapidly changing world that demands flexible and innovative workers.”

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Source: Business World

OECD trims PHL growth forecast for this year

The Organisation for Economic Co-operation and Development (OECD) trimmed its gross domestic product (GDP) growth forecast for the Philippines for this year.

In its latest Economic Outlook for Southeast Asia, China, and India update, the OECD said it now expects Philippine GDP to expand by 5.6% this year, slightly lower than the 5.7% projection in March. This is below the government’s 6-7% GDP growth target for this year.

The OECD kept its 2024 growth projection at 6.1%, which is still below the government’s 6.5-8% target.

“A key growth driver in the second half of 2023 will be a strong rebound in government spending, from its 7.1% contraction in the recent quarter, executed through catch-up plans and frontloading of programs and projects,” the OECD said.

“Fiscal stimulus activities are also being implemented which should fuel activities of both the public and private sectors,” it added.

The Philippine economy grew by 4.3% in the second quarter, slower than the 6.4% growth in the first quarter and 7.5% in the second quarter of 2022. In the first half, GDP growth averaged 5.3%.

The OECD said elevated inflation and higher borrowing costs dragged private consumption and investments in the second quarter. The slowdown was also amplified by the contraction in government spending, it added.

For the rest of the year, the OECD said that domestic demand is expected to drive growth, “supported by labor market expansion, personal income tax cuts, stable inflows of remittances and the steady recovery of tourism.”

“On the supply side, the services sector will continue its steady upward trajectory and will remain a reliable source of economic activity, boosting GDP growth, due to the improved outlook of tourism as well as rapid growth of the business process outsourcing industry,” it added.

With fiscal consolidation “underway,” the OECD expects the Philippines’ budget deficit to narrow from this year to 2025.

On the other hand, the OECD said that trade prospects in the next few months may be bleak.

“Prolonged weak external demand from the United States and China, the country’s top trading partners, will continue to drag down exports in the coming months,” it said.

The Philippines’ lack of diversification of exports leaves it vulnerable to sector-specific risks.

“For example, the Philippines recorded a decline in exports in the first and second quarter of this year owing to its heavy reliance on electronics products and dependence on the United States and China as major trading partners,” the OECD said.

The Semiconductor and Electronics Industries in the Philippines Foundation, Inc. (SEIPI) expects electronics exports growth to be flat this year. Data from SEIPI showed total electronics exports declined by 7% to $21.19 billion in the six-month period.

The OECD noted that private investment is also expected to slow due to high interest rates and a weaker global economy. On the other hand, landmark reforms and improving investor sentiment could help the country attract more foreign direct investments.

Meanwhile, the OECD said high borrowing costs will continue to weigh on growth.

“The Philippine central bank is likely to maintain a high interest rate regime, which will dampen GDP growth should pent-up demand ease,” it said.

To curb inflation, the BSP raised borrowing costs by 425 basis points (bps) from May 2022 to March 2023, bringing its key rate to a near 16-year high of 6.25%.

Another downside risk to the Philippine growth outlook is the still elevated global inflation, which could prompt further tightening from central banks in advanced economies and may trigger capital outflows, the OECD said.

“This could push down the value of the Philippine peso, which is forecast to recover mildly from a sharp depreciation episode in 2022. The persistent global financial turmoil could translate into higher borrowing costs for the government, adding pressure to its public debt,” it said.

Source: Business World