Economic growth slowed to 5.4 percent in the first quarter of 2025 from 5.9 percent in the same period last year as businesses turned wary about Trump’s tariffs.

Despite the year-on-year dip, the Philippine Statistics Authority on Thursday reported that the figure slightly improved from the 5.3 percent recorded in the fourth quarter of 2024.

As of Thursday, the Philippines posted the second-fastest growth rate in Asia, trailing Vietnam’s 6.9 percent and surpassing Indonesia’s 4.9 percent and Malaysia’s 4.4 percent.

Deepali Bhargava, ING regional head of research for Asia-Pacific, said private consumption and government spending growth were strong ahead of upcoming elections and were in line with expectations.

“The disappointment was net export and investment growth. This highlights uncertainty around business confidence amid tariff escalations and a slowdown in trade,” according to the ING analyst.

Bhargava added that net exports subtracted a negative 2 percentage points to gross domestic product growth in the first quarter, a much higher drag on growth than the average of 0.7 percent over the past year.

She said this suggests less frontloading of exports in the quarter before the implementation of tariffs, a dynamic that’s more evident in other export-driven economies.

Looking at the sector-wise data, manufacturing growing 4.1 percent year-over-year was indeed a positive sign, indicating robust industrial activity. However, services sector growth moderated to 6.3 percent from 6.7 percent in the previous quarter amid weaker professional and business services growth. This indicates a slowdown in business-process-outsourcing (BPO) and related activities.

“This underscores our resilience amid global economic volatility,” said Secretary Arsenio Balisacan of the Department of Economic Planning and Development (DEPDev).

Balisacan added that external demand for goods and services also softened as growth in Philippine exports declined to 6.2 percent from the 3.15 percent posted in the fourth quarter of 2024.

Trade and Industry Secretary Cristina A. Roque said the first quarter gross domestic product figures was fueled by strong consumer spending and the dynamic contributions of industries.

“The Department of Trade and Industry recognizes this growth as a testament to the dedication of Filipino businesses and consumers, and we are committed to building on this momentum through strategic initiatives that prioritize inclusive and sustainable economic expansion,” she explained.

Major growth drivers

The major growth drivers included government spending, which jumped by 18.7 percent from 9.7 percent in the fourth quarter of the previous year.

“This reflects the front-loading of public programs in anticipation of the election ban,” DEPDev Undersecretary Rosemarie Edillon said.

Household consumption also rose by 5.3 percent from 4.7 percent based on quarterly growth and from 4.6 percent year-on-year.

In terms of industries, the biggest expansions were seen in the wholesale and retail trade and repair of vehicles at 6.4 percent. This was followed by financial and insurance, growing by 7.2 percent, and manufacturing, which improved by  4.1 percent.

Agriculture continued to expand by 2.2 percent from only 0.4 percent year-on-year and a contraction of 1.8 percent in the fourth quarter of last year.

Growth opportunities

Edillon said the government will sustain spending in infrastructure and services as it prepares for the country’s hosting of the ASEAN Tourism Forum next year. She said this also means higher tourism revenues, which should encourage further private-sector investments.

“We’re very confident in growth in public construction and projects through public-private partnerships,” she said. “Fixed capital formation grew by 5.9 percent versus 2.3 percent in the first quarter last year, and that’s why we say the latest overall economic growth was a measured start,” Edillon continued.

She said property developers might also explore transforming office spaces into co-working spaces as an alternative source of income after the exit of  Philippine offshore gaming operators.  

“In terms of work arrangements, there has to be a reconfiguration of office spaces. We think that the private sector is very agile in redesigning these office spaces,” she said.