Emerging markets like the Philippines could sustain capital flows from investors despite a possible global economic slowdown of 2.7 percent this year, which is lower than the 3.7 percent average growth seen pre-pandemic. This was the latest analysis released Friday by the Washington-based Institute of International Finance (IIF).

“Capital is not retreating, but its pace is slowing, becoming increasingly selective, and prioritizing macroeconomic resilience,” IIF said.

The Bangko Sentral ng Pilipinas last Tuesday reported the Philippines’ net inflows of foreign direct investments in March dropped by 27.8 percent to $498 million from $689 million recorded in the same month of 2024 amid Trump’s tariff threats.

However, IIF said emerging countries with strong domestic consumption will continue to attract foreign investments as investors avoid possible higher inflation or weaker corporate profits from US, European, Chinese and Japanese markets. The Philippines’ household consumption accelerated by 5.3 percent in the first quarter this year from 4.6 percent in the first quarter of 2024, according to the Philippine Statistics Authority.

Low rates seen persisting

This was after the Philippine central bank slashed its policy rate by a total of 75 basis points to 5.75 percent in December 2024 from 6.5 percent in May of the same year.

It also reported last week that the country received an investment-grade of A- and a stable economic outlook from Japan Credit Rating Agency, Ltd.

On the other hand, the finance institute said China and Japan might struggle to boost foreign investments due to weak demand for goods and services, including real estate, and government spending on key sectors.

“China continues to attract modest flows due to domestic uncertainties, whereas emerging markets with stronger institutional frameworks are better positioned to capture investor interest,” IIF said.

“Currently, China’s main contribution to the global economy is more disinflationary than growth supportive,” the finance institute added.

IIF also said US businesses expressed negative economic outlook in their homeland which is seen to incur additional $3.3 trillion in government debt by 2034 due to Trump’s deep tax cuts for several sectors.

“Inflation expectations there remain elevated and signs of weakening domestic demand have become more apparent,” IIF said.

Meanwhile, IIF said household consumption in European countries might exhibit restraint as the European Central Bank (ECB) raises its policy rate.

“Germany is moving toward more expansionary fiscal policy through increased defense and infrastructure spending. While supportive of potential growth in the longer term, this policy shift could complicate the ECB’s inflation targeting and create internal fiscal tensions within the European Union,” IIF said.