Deeper scar looms from U.S. trade war

Due to Trump’s protectionist trade stance, economists expect growth to moderate in the second quarter as households and firms navigate the high-tariff environment.

Union Bank of the Philippines chief economist Carlo Asuncion projects less than five percent growth in the second quarter, partly due to lower infrastructure spending.

The first-quarter economic growth was 5.4 percent, slower than the 5.9 percent recorded by the Philippine Statistics Authority in the same period last year.

“The 45-day election ban on infrastructure spending, high base effects a year ago, and the negative US tariff hike effects on trade could weigh on second-quarter growth, unless private investments gain traction,” he said.

However, this year’s first-quarter level slightly increased from the 5.3 percent seen in the fourth quarter of 2024.

Asuncion said economic growth this year might peak at 5.6 percent in the final quarter as household and corporate consumption strengthen due to cheaper interest and inflation rates.

“We think that there is ample space for the local central bank to further cut rates. It was the Bangko Sentral ng Pilipinas (BSP) Governor himself who recently acknowledged the potential of cutting 75 basis points for 2025,” the economist said.

For this year, the Bangko Sentral ng Pilipinas (BSP) delivered its first cut of 25 basis points in April toward 5.5 percent after lower inflation in March at 1.8 percent from 2.1 percent in February. 

Last month, inflation improved to 1.4 percent, the lowest in more than five years, based on national statistics. The BSP Monetary Board has four meetings left to announce a new rate.

Asuncion said major industries still showed decent growth despite the risks from Trump’s tariffs, such as higher global inflation.

Services grew slightly slower by 6.3 percent from 6.7 percent quarter-on-quarter.

Factories show resilience “More interesting is the annual or sequential growth of manufacturing and the other industrial elements of gross domestic product; they were not as fragile despite some monthly indicators suggesting underperformance of manufacturing,” Asuncion said.

He projects 5.3 percent growth this year and stresses possible changes in local employment rates due to the global economic slowdown.

Rizal Commercial Banking Corp. chief economist Michael Ricafort said specific industries might weaken as global consumers become more cautious.

“Revenge spending also already tapered off recently in some businesses hit hard by the pandemic, such as tourism and other related industries, after sharply higher growth rates over the past one to two years,” he said.

HSBC economist for Southeast Asia, Aris Dacanay, added that income from Philippine exports might continue to settle below optimum, leading to a lower overall economic growth outlook for this year at 5.6 percent from 5.9 percent.

“We expect growth in the Philippines to weaken further in the second half of 2025 as trade uncertainties and challenges drag the global economy. Goods exports will likely slow down as tariffs cascade globally,” he said.