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By Luisa Maria Jacinta C. Jocson, Senior Correspondent
THE United States’ 19% tariff on Philippine products could reduce the Philippines’ gross domestic product (GDP) expansion by 0.4 percentage points (ppt), Nomura Global Markets Research stated.
In a report, Nomura indicated that the US tariff of 19% on Philippine products is “quite elevated” and poses downside risks to growth.
“We anticipate the direct effects could lower our baseline GDP growth predictions by a notably significant 0.4 ppt in the Philippines.”
Nomura mentioned that this forecast is “relatively significant” in comparison to its baseline growth predictions of 5.3% and 5.6% for this year and 2026, respectively.
“This is partly due to us designating 10% as the level where the counter tariff rate could stabilize, under the assumption that the Philippines is a strong ally of the US and is not perceived as a third country for transshipments,” Nomura pointed out.
“It appears that, despite President Marcos’ visit to Washington and both parties emphasizing the necessity for a robust partnership, the tariff was still established at 19%, which exceeds the ‘Liberation Day’ rate of 17%.”
Last week, Philippine President Ferdinand R. Marcos, Jr. met with US President Donald J. Trump at the White House in Washington, DC.
Mr. Trump declared that a 19% tariff would be enforced on Philippine products, commencing August 1.
“The trade ‘arrangements’ consequently represent unexpected developments in terms of tariff levels, particularly for the Philippines,” Nomura noted.
“Thus, if enacted and these tariff rates are maintained, they will likely further hinder growth in both nations relative to our existing baseline predictions.”
The government anticipates GDP to rise by 5.5-6.5% this year, less than its prior target of 6-8%.
“While these rough estimates make sense to us, uncertainty remains high, and these are ‘only’ considering the immediate effects on these ASEAN nations’ exports to the US,” Nomura remarked.
These projections do not factor in sector-specific tariffs, such as in semiconductors and pharmaceuticals, which currently enjoy exemptions, it added.
“But as our US team emphasizes, the risk is these could be elevated further, though some nations might be exempted, adding to the uncertainty. As mentioned earlier, the specifics of the trade arrangements with Indonesia and the Philippines remain scant.”
“Meanwhile, other key trading partners, especially the European Union, are still in talks, and a rise in trade tensions could introduce additional challenges for the region,” it added.
The Department of Trade and Industry has stated it continues to negotiate the final aspects of the trade agreement with the US to safeguard local industries.
ONE LARGE ATTRACTIVE BILL
Meanwhile, Mr. Trump’s recent One Large Attractive Bill Act may also influence the Philippine economy, Metropolitan Bank & Trust Co. (Metrobank) Research mentioned in a separate report.
“While the US encounters the direct effects of Mr. Trump’s extensive bill, the Philippines will experience the aftershocks. After 2027, the federal funds rate is projected to increase following rate reductions in the short-term.”
Metrobank noted that this will have spillover effects on the Bangko Sentral ng Pilipinas’ (BSP) monetary policy and remittances from overseas Filipino workers (OFWs).
“This can subsequently elevate the BSP’s reverse repurchase rate, obstructing domestic consumption. Furthermore, if US GDP growth is dampened due to private investment crowding out, demand for exports and OFW remittances may also experience a downturn.”
Under the bill, Mr. Trump’s 2017 tax reductions are made permanent and also introduces new tax incentives.
“As the US seeks financing to manage the increased expenditure, interest rates are anticipated to rise, potentially as soon as next year. Elevated US rates would subsequently draw foreign capital to the US, diverting it away from emerging market economies like the Philippines,” Metrobank stated, adding that the BSP could raise rates to “ensure the Philippines remains an attractive option for investors.”
The Philippine central bank has lowered interest rates by a total of 125 basis points (bps) since the commencement of its easing cycle in August last year. It executed a second consecutive rate cut in June, reducing borrowing costs by 25 bps to bring the key rate to 5.25%.
Metrobank indicated that higher rates would deter consumption and business investment, which could potentially decelerate Philippine growth.
Slowing US growth could also affect the Philippines’ export sector, as the US is the primary destination for Philippine export goods, it indicated.
“With US economic growth potentially hindered, goods from the Philippines may see a decline in demand. Fewer exports combined with elevated tariffs can exacerbate the trade deficit and weigh down overall GDP,” it mentioned.
Metrobank suggested that a slowdown in US growth might also lessen foreign direct investment in emerging markets like the Philippines.
Meanwhile, OFW remittances may also decline as the US begins imposing a 1% excise tax on cash remittance transfers from the US to other nations in 2026.
“The US is a key destination for OFWs, with roughly 2 million OFWs residing in the US. OFWs significantly contribute to the Philippine economy through remittances, which could be adversely affected by a deceleration in US growth,” Metrobank stated.
Approximately two-fifths of the Philippines’ remittance flows originate from the United States. The US was the leading source of remittances in the five-month period, accounting for 40.2% of the total, as per the latest data released by the central bank.
“If OFWs experience wage reductions or even lose their employment, this would limit remittances sent home. Remittance inflows stimulate household spending, which makes up 78.2% of the Philippines’ GDP.”
The BSP previously estimated that the remittance tax could reduce the country’s remittance growth by 0.5 ppt. The central bank anticipates cash remittances to expand by 2.8% this year and by 3% in 2026.
“A drop in remittances depresses household spending, negatively impacting growth,” Metrobank concluded.
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