PHILIPPINE economic growth may pick up within 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 speed up GDP expansion in Q3 to five.8%, given a low base in 2024,” it said in its latest The Market Call released on Friday.
If realized, this could be faster than 5.2% within the third quarter of 2024 and 5.5% print within the second quarter. This forecast can be inside the federal government’s revised 5.5% to six.5% goal this 12 months.
“Consumer spending stays strong, aided by low inflation but limited by recent US taxes on OFW (overseas Filipino Employee) 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%, barely below the Bangko Sentral ng Pilipinas’ (BSP) 2-4% goal band.
UA&P said government infrastructure spending may regain momentum within the third quarter. This was after state spending slumped on account of the 45-day election ban on public works spending from March 28 to May 12.
UA&P said residential construction will remain subdued on account of elevated policy and rates of interest.
The Bangko Sentral ng Pilipinas (BSP) has to this point lowered borrowing costs by a complete of 125 basis points (bps) because it began its easing cycle in August last 12 months. 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 should 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 best within 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 lower 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 approaching months, arising from US tariffs and a slowdown in the worldwide economy.
In a report, ANZ said the Philippines’ services surplus has been moderating in recent quarters, as business process outsourcing and knowledge technology exports remain resilient.
The services surplus narrowed to $3.3 billion in the primary quarter from $4.2 billion within the fourth quarter.
“Nevertheless, the IT-BPO (information technology-business process outsourcing) sector faces several risks within the near term. A tariff-induced slowdown in the worldwide economy could dampen demand for outsourced services, particularly from the US, which is the biggest 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 can be coping with the increasing adoption of artificial intelligence, as low-skilled employees are seen to be most vulnerable to displacement.
ANZ said the Philippines’ external accounts will face more challenges as goods exports demand is predicted to weaken over the subsequent few months.
“Though the Philippines’ exposure to US demand is comparatively low, the broader impact of US tariffs on the worldwide 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 predicted to stay subdued on account of low wage growth, which is limiting purchasing power,” ANZ said.
ANZ said capital expenditure is prone to speed up within the second half.
“Higher infrastructure spending typically translates to higher demand for capital imports for the Philippines, which can potentially further widen the trade deficit,” it said.
At the identical time, ANZ said the 1% excise tax on remittances from the US is predicted to have a “modest effect” on the country’s external accounts.
“This development is especially relevant for the Philippines, given its heavy reliance on inward remittances from the US (about 40% of total remittances). It is usually a vital source of household income, consumption, and external account support. Remittances are a key component of the present 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. Nevertheless, ANZ noted that because the recent tax will likely be applied on cash-based remittances, its scope will likely be relatively limited.
“The Philippine Department of Finance estimates the entire impact of the tax to be around $1.9 billion, which represents a small share of total remittances. Consequently, while the effect on the Philippines’ external accounts is expected to be limited in 2026,” it said.
ANZ said an extra slowdown within the US labor market will even affect the quantity of remittances sent to the Philippines.
Money sent home by OFWs rose by 3.1% to $16.75 billion in the primary six months of the 12 months, with land-based employees contributing the majority of the rise. — ARAI