World Bank: U.S. tariff uncertainty threatens global investment flow

As the Trump administration has yet to confirm whether the 90-day pause on newly imposed tariffs — including those affecting the Philippines — will be extended, the World Bank warned that the uncertainty is already affecting global trade decisions.

“We prefer not to speculate on things that haven’t yet happened. What we can say is that this brings more uncertainty,” said Gonzalo Varela, lead economist at the World Bank, during the launch of the Philippines Economic Update (PEU) at Dusit Thani Hotel in Makati on Thursday.

Varela emphasized that firms are deferring investment decisions due to the unpredictability surrounding the pause, making it more expensive to invest. He cited internal research showing that the best response for the Philippines and other nations is to “double down on domestic reforms.”

Despite the existence of the Ease of Doing Business Act, Varela noted that foreign companies still face an average of 106 days to register a business in the country — a major deterrent.

Further, he said the "shock," pertaining to Trump’s inconsistencies on the 90-day pause extension, makes investment costlier because firms are deterring or postponing investment decisions.

“So, you counteract that by reducing investment costs at home. The increasing uncertainty in trade barriers globally is an opportunity for the Philippines to focus on doubling down on domestic reforms and reducing the cost of doing business in the economy, trade costs, and advancing on the agenda of regional trade agreements, such as trade pact with the European Union that is currently under negotiation,” Varela explained.

U.S. President Donald Trump said last week he may extend the 8 July deadline before new tariffs are implemented, but no clear decision has been made.

SMEs to maintain growth trajectory

Zafer Mustafaoğlu, World Bank division director for the Philippines, Malaysia, and Brunei, stressed that unlocking the potential of the private sector — especially small and medium enterprises (SMEs) — is essential for the country to weather global risks.

"Boosting private sector growth and job creation can help the Philippines mitigate the impact of global policy uncertainty," he said. "This will require improving infrastructure, bridging skills gaps, implementing business-friendly policies, and mobilizing private sector capital, as public funds alone cannot meet the country's development needs."

The PEU projects Philippine GDP growth at 5.3 percent in 2025 — a slight dip from the 2023-2024 average — buoyed by stable inflation, a strong labor market, and supportive fiscal and monetary policies.

Looking further ahead, GDP is forecast to hold steady at 5.4 percent through the medium term, underpinned by public-private partnerships and consistent public investment.

However, the report also flagged emerging challenges. Exports and foreign direct investment have slowed due to global instability, and the country’s fiscal deficit widened to 7.3 percent in Q1 2025 due to higher transfers to LGUs, interest payments, and capital outlays.

“A growing policy challenge is how to manage fiscal consolidation while maintaining strong growth," said Jaffar Al-Rikabi, World Bank Senior Country Economist for Economic Policy. “Carefully managing expenditure disbursements will help bring the year-end deficit in line with expectations. Over the medium term, reforms to strengthen domestic revenue mobilization and improve public expenditure efficiency will enable the government to implement its medium-term fiscal framework and rebuild fiscal buffers.”