MOODY’S ANALYTICS revised its economic growth predictions for the Philippines to under 6% for this year and 2026, indicating the effects of uncertainties stemming from the United States’ tariff regulations.
Nonetheless, Moody’s Analytics economist Sarah Tan mentioned that the Philippines continues to be recognized as one of the rapidly growing economies in Southeast Asia.
Moody’s Analytics anticipates Philippine gross domestic product (GDP) to expand by 5.9% this year, marginally slower than its 6% baseline estimate from November.
For 2026, it also lowered its Philippine GDP growth estimate to 5.8% from a previous 6.1%.
If realized, these projections would both underperform the government’s 6-8% goal for 2025 and 2026.
“While the anticipated growth is below the government’s target, it would signify the most significant expansion in three years,” Ms. Tan stated during a webinar on Wednesday.
“Private consumption and investment will be the primary driver of growth in the Philippines, aided by stable inflation and a more relaxed monetary policy.”
Typically, household expenditure constitutes about three-fourths of the Philippine economy.
Conversely, Ms. Tan pointed out that the growth outlook was downgraded to reflect the ramifications of recent US tariff regulations.
Moody’s Analytics Head of Japan and Frontier Market Economics Stefan Angrick noted that the earlier projections were made in November prior to the election of US President Donald J. Trump.
Since assuming office in January, Mr. Trump has enacted a 20% duty on all Chinese imports; 25% tariffs on goods from Canada and Mexico, in addition to 25% tariffs on all steel and aluminum imports.
“Any external developments, trade tensions will suppress growth in other parts of the world. This will subsequently affect overall demand and indirectly stifle growth in the Asia-Pacific region,” Mr. Angrick remarked.
“For (Asia-Pacific) as a whole, we predict GDP growth this year will be just above 3.5%, down from around 4% last year.”
The region is more susceptible to these risks as it relies on free trade, making it more vulnerable to a decrease in global trade, Mr. Angrick stated.
However, he mentioned that some regions in Southeast Asia have minimal export ties with the US.
“The direct exposure to alterations in the US tariff system is comparatively low,” he added.
Ms. Tan indicated that the Philippines’ dependency on exports is “fairly minor” compared to its regional counterparts.
“The influence of Trump’s policies on the Philippine economy is not as significant as what we observe in nations like Thailand or Indonesia,” she expressed.
“Nonetheless, reciprocal tariffs or any tariffs imposed by the US will certainly harm Philippine exporters, primarily because the US is the largest destination for Philippine exports.”
Mr. Trump has also threatened to enact reciprocal tariffs on countries that impose taxes on US imports as early as April.
“While it is improbable to cause a substantial impact on the macroeconomy, it will undeniably hurt those exporters and manufacturers,” Ms. Tan added.
The US remains the primary destination for Philippine products. Last year, Philippine exports to the US reached $12.12 billion or nearly 17% of total export sales.
RELAXED INFLATION
Meanwhile, Moody’s Analytics forecasts headline inflation to remain within the central bank’s 2-4% target until 2026.
“This year, we expect inflation to further decrease and interest rates to drop even more, which will stimulate private expenditure and investments,” Ms. Tan stated.
Moody’s Analytics envisions inflation averaging 2.8% this year and 3% in 2026.
The Bangko Sentral ng Pilipinas’ (BSP) baseline inflation forecast is set at 3.5% for both 2025 and 2026. Considering risks, inflation may reach 3.7% in 2026.
Moody’s Analytics Chief APAC Economist Steve Cochrane asserted that central banks in the region will be able to provide further support to their economies by lowering interest rates.
“Although it may be a slow process, there will be ongoing normalization of rates moving forward,” he noted.
The BSP last month decided to maintain its key rate at 5.75% amidst global trade uncertainties.
However, BSP Governor Eli M. Remolona, Jr. has indicated they remain in an easing cycle, hinting at a potential 25-basis-point (bp) reduction at the Monetary Board’s meeting on April 10.
Ms. Tan expressed their expectation that the BSP will reduce by 50 bps to 5.25% by the end of 2025.
“As US tariffs might dampen global demand and the pace of interest rate normalization, the Philippine central bank will adopt a more cautious approach to monetary easing to prevent a significant depreciation of the peso,” she explained.
STRUCTURAL REFORMS
Furthermore, the International Monetary Fund (IMF) separately stated that Southeast Asia, including the Philippines, could gain from “ambitious” reform initiatives.
“Nations such as Indonesia, Malaysia, the Philippines, Thailand, and Vietnam — the five largest emerging markets among the 10 economies in the Association of Southeast Asian Nations (ASEAN) — could enhance long-term real economic output,” remarked IMF economist Anne-Charlotte Paret Onorato in a blog.
On average, the IMF indicated the growth in these economies could rise by 1.5% to 2% after two years and even as high as 3% after four years if “comprehensive and simultaneous comprehensive reform packages” are put into action.
These reforms not only promote swifter potential growth but also assist economies in achieving higher income levels, it added.
“Extensive reforms can bolster resilience against shocks amid uncertainties and motivate the private sector to drive growth,” it noted, while also highlighting that these reforms often present “significant political economy challenges.”
The key structural aspects these economies need to tackle include trade openness, as per the IMF.
“While the six major ASEAN economies are generally more open than the average emerging market in the Group of 20, these nations still have numerous trade barriers —and are comparatively more challenging to trade with,” Ms. Onorato remarked.
“Enhancing logistics and trade facilitation to expedite, reduce costs, and lessen uncertainties in cross-border transactions would aid the five largest ASEAN emerging market countries in boosting economic growth.”
The multilateral organization also emphasized the necessity to address the “lagging services trade.”
The Philippines’ services trade dropped by 19.8% to $14.58 billion in 2024 from $18.18 billion in 2023, according to the latest figures from the central bank.
Service exports increased by merely 7.5% year-on-year to $51.98 billion from $48.33 billion in contrast to imports, which surged by 24% to $37.4 billion from $30.15 billion.
This could help “maximize pro-competitive advantages and technological spillovers, while creating high-quality employment,” the IMF stated.
“Indeed, transitioning to a more services-driven economy for emerging markets does not imply that the potential for catching up to advanced economies’ income levels would be diminished — however, leveraging this shift necessitates supporting the transition to highly productive services.”
The IMF noted the importance of high-quality education and better job-matching to boost productivity.
ASEAN economies also need to enhance their attractiveness for investment and further promote financial inclusion, it added.
“Considering human development, it is remarkable that all principal ASEAN emerging market nations benefit from a demographic edge compared to benchmarks,” Ms. Onorato noted.
“Put simply, they usually have relatively more individuals working than dependents (like children and elderly individuals). Thus, there exists an opportunity to implement reforms now before aging populations increase fiscal responsibilities like pensions and healthcare.”
Looking ahead, the IMF stated that purposeful and bold structural reform initiatives can enhance sustainable and inclusive growth.
“A substantial concurrent reform initiative aimed at improving business and external regulations, governance, and human development could elevate output levels by as much as 3% after four years. The advantages derived from implementing a single significant economic reform would be comparatively modest.”
These reforms can also enhance economies’ resilience amid external challenges.
“In a shock-prone global context, ambitious nationwide structural reforms can also contribute to resilience by fostering diversified, broad-based, inclusive domestic growth, and ensuring a credible and robust institutional framework to further unleash private sector-led growth.” — Luisa Maria Jacinta C. Jocson
