Trade war biggest risk to PH growth
PHILIPPINE economic growth could return to target this year, an economist said, but a global trade war — its scope and magnitude in particular — arising from US protectionism could have significant consequences.
Security Bank Corp. research head and chief economist Angelo Taningco told reporters on Wednesday that an economic conflict between countries posed the biggest risk to this year’s economic performance.
“It depends on the magnitude of the trade war. It depends also on how much the tariff[s] will be…,” he said.
Taningco said gross domestic product (GDP) growth could hit 6.1 percent this year, near the lower end of the government’s 6.0- to 8.0-percent target. GDP growth was 5.6 percent last year, below the 6.0- to 6.5-percent goal, and was also short of the 6.0- to 7.0-percent target in 2023 at 5.5 percent.
US President Donald Trump has followed through with campaign promises to protect US manufacturing and jobs by implementing tariffs, first targeting major trading partners Canada, Mexico and China, and then announcing duties on all aluminum and steel imports.
He wants to raise duties on pharmaceutical, automobile and semiconductor imports, warned that the US would be imposing reciprocal tariffs on all countries that tax US exports, and also revived possible retaliation against digital services taxes on American firms.
The Philippines has a trade surplus with the US, meaning that it sells more goods than it buys from its largest trading partner. The country also supplies semiconductors to the US, among other products, and recently implemented a digital services tax that will affect US firms such as Amazon, Netflix and Disney.
Officials have said that the US merchandise trade deficit with the Philippines — it was $4.6 billion in 2024 based on data from the Office of the US Trade Representative — is too small to be of much worry, and that efforts would be made to mitigate or stave off the impact of higher tariffs.
Taningco agreed that the Philippines would be “less affected compared to the likes of China and Japan if ever the automobile tariffs [push through]. But we’re not purely unscathed from a trade war.”
“Being part of the global value chain, we will also get affected in terms of the growth of our exports; it will get weaker. You can just imagine the consequences on trade flows globally.”
Rate cut prospects
The trade war risk will influence monetary policy decisions, and both the US Federal Reserve and the Bangko Sentral ng Pilipinas have paused from further rate cuts after embarking on easing cycles last year.
Taningco said the BSP was likely to lower interest rates twice this year, possibly in June and October, but also said that higher tariffs could diminish prospects of further Fed easing.
“It’s not yet that necessary to [be in] lockstep [with the Fed] because of the uncertainties,” he said. “But if you ask me now, it’s safer to lockstep.”
Most analysts expect the BSP to resume easing in April, which Taningco said was possible. Given external uncertainties, however, he said the central bank could opt to keep pace with the Fed.
Also on Wednesday, UBS Investment Bank Global Research economist Grace Lim told reporters that the BSP could cut rates in April and September with inflation manageable and likely to stay within target this year and the next.
“BSP is slightly more advanced in the rate cut cycle compared to other Asean economies, with its three cuts in 2024,” she noted.
The decision to pause earlier this month, Lim said, was a “wait-and-see move” warranted by trade policy uncertainties and with last year’s easing still working its way through the economy.
“There was room to reassess the situation first,” she added.
GDP growth, however, could fall below target this amid risks to inflation, but the economy overall would be insulated to some extent from a trade war as it is primarily driven by domestic consumption.
The peso, which has been affected by a strong dollar, is also expected to be relatively resilient compared to other regional currencies.
“Even in the case of trade tariff escalation, the Philippine peso could be slightly a relative outperformer in the region,” Lim said.
“That said, we do think that if tariffs are universal, then obviously there could be weaker prospects for currencies in general, but even in that scenario, it would not be a very big depreciation.