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By Luisa Maria Jacinta C. <\/b>Jocson, <\/b><\/span>Senior Correspondent <\/i><\/p>\n THE United States\u2019 19% tariff<\/span> on Philippine products could reduce the Philippines\u2019 gross domestic product (GDP) expansion by 0.4 percentage points (ppt), Nomura Global Markets Research stated.<\/p>\n In a report, Nomura indicated that the US tariff of 19% on Philippine products is \u201cquite elevated\u201d and poses downside risks to growth.<\/p>\n \u201cWe anticipate the direct e<\/span>ff<\/span>ects could lower our baseline GDP growth predictions by a notably significant 0.4 ppt in the Philippines.\u201d<\/span><\/p>\n Nomura mentioned that this forecast is \u201crelatively significant\u201d in comparison to its baseline growth predictions of 5.3% and 5.6% for this year and 2026, respectively.<\/p>\n \u201cThis is partly due to us designating 10% as the level where the counter tari<\/span>ff<\/span> 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,\u201d Nomura pointed out.<\/span><\/p>\n \u201cIt appears that, despite President Marcos’ visit to Washington and both parties emphasizing the necessity for a robust partnership, the tariff<\/span> was still established at 19%, which exceeds the \u2018Liberation Day\u2019 rate of 17%.\u201d<\/p>\n Last week, Philippine President Ferdinand R. Marcos, Jr. met with US President Donald J. Trump at the White House in Washington, DC.<\/p>\n Mr. Trump declared that a 19% tariff<\/span> would be enforced on Philippine products, commencing August 1.<\/p>\n \u201cThe trade \u2018arrangements\u2019 consequently represent unexpected developments in terms of tariff<\/span> levels, particularly for the Philippines,\u201d Nomura noted.<\/p>\n \u201cThus, if enacted and these tariff<\/span> rates are maintained, they will likely further hinder growth in both nations relative to our existing baseline predictions.\u201d<\/p>\n The government anticipates GDP to rise by 5.5-6.5% this year, less than its prior target of 6-8%.<\/p>\n \u201cWhile these rough estimates make sense to us, uncertainty remains high, and these are \u2018only\u2019 considering the immediate effects on these ASEAN nations\u2019 exports to the US,\u201d Nomura remarked.<\/p>\n These projections do not factor in sector-specific tariff<\/span>s, such as in semiconductors and pharmaceuticals, which currently enjoy exemptions, it added.<\/p>\n \u201cBut 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.\u201d<\/p>\n \u201cMeanwhile, 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,\u201d it added.<\/p>\n The Department of Trade and Industry has stated it continues to negotiate the fi<\/span>nal aspects of the trade agreement with the US to safeguard local industries.<\/p>\n ONE LARGE ATTRACTIVE BILL \u201cWhile the US encounters the direct eff<\/span>ects of Mr. Trump\u2019s extensive bill, the Philippines will experience the aft<\/span>ershocks. After 2027, the federal funds rate is projected to increase following rate reductions in the short-term.\u201d<\/p>\n Metrobank noted that this will have spillover eff<\/span>ects on the Bangko Sentral ng Pilipinas\u2019 (BSP) monetary policy and remittances from overseas Filipino workers (OFWs).<\/p>\n \u201cThis can subsequently elevate the BSP\u2019s 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.\u201d<\/p>\n Under the bill, Mr. Trump\u2019s 2017 tax reductions are made permanent and also introduces new tax incentives.<\/p>\n \u201cAs 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,\u201d Metrobank stated, adding that the BSP could raise rates to \u201censure the Philippines remains an attractive option for investors.\u201d<\/p>\n 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%.<\/p>\n Metrobank indicated that higher rates would deter consumption and business investment, which could potentially decelerate Philippine growth.<\/p>\n Slowing US growth could also affect the Philippines\u2019 export sector, as the US is the primary destination for Philippine export goods, it indicated.<\/span><\/p>\n \u201cWith US economic growth potentially hindered, goods from the Philippines may see a decline in demand. Fewer exports combined with elevated tariff<\/span>s can exacerbate the trade defi<\/span>cit and weigh down overall GDP,\u201d it mentioned.<\/p>\n Metrobank suggested that a slowdown in US growth might also lessen foreign direct investment in emerging markets like the Philippines.<\/p>\n 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.<\/p>\n
\n<\/b>Meanwhile, Mr. Trump\u2019s recent One Large Attractive Bill Act may also influence the Philippine economy, Metropolitan Bank & Trust Co. (Metrobank) Research mentioned in a separate report.<\/span><\/p>\n