Trade war poses risk to PHL growth

By Luisa Maria Jacinta C. Jocson and Aaron Michael C. Sy, Reporters

THE PHILIPPINE ECONOMY’S biggest risk this year is the looming global trade war, Security Bank said, which could also cause the central bank to be more “external-dependent” to account for these uncertainties.

“We’re 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,” Security Bank Corp. Vice-President and Research Division Head Angelo B. Taningco told reporters on Wednesday.

“Being part of the global value chain, we will also get affected in terms of the growth of our exports, it will get weaker.”

Security Bank expects the country’s gross domestic product (GDP) to grow by 6.1% this year, at the low end of the government’s 6-8% target.

However, this base case does not take into account the impact of a possible trade war.

Mr. Taningco said it will be “difficult” for the Philippines to grow by 6.1% if the trade uncertainties materialize.

“It depends on the magnitude of the trade war. It depends also on how much the tariff will be hiked,” he added.

Markets are bracing for the potential impact of US President Donald J. Trump’s trade policies, such as reciprocal tariffs on all countries that tax US imports.

Since taking office in January, Mr. Trump has imposed a 10% duty on Chinese imports. A 25% tariff on Mexico and Canada, as well as a tariff on all steel and aluminum imports is set to take effect next month.

Mr. Taningco said that if the US pushes its plans for reciprocal tariffs, other countries are expected to retaliate.

He said the “tit-for-tat” retaliation will likely be more widespread than during Mr. Trump’s first term, as more countries are involved.

POLICY IMPACT
The slew of tariffs will have implications on US inflation and monetary easing, which could also impact the Philippines’ own rate-cutting cycle.

“It will be worse on inflation in the US if they do it alongside the tax cuts. Demand-side inflation, that’s scarier, because inflation will spike. So, no more rate cuts,” Mr. Taningco said.

“Growth will go down and that’s being felt by the consumers. Normally, when they are scared, consumers in the US, they pull back their spending plans.”

This could prompt the Bangko Sentral ng Pilipinas (BSP) to be “more external-dependent,” Mr. Taningco said, amid heightened global uncertainty.

“If tariffs are raised sharply, prospects for rate cuts in the US might diminish. But on second thought, your growth prospects will diminish. But the central bank has a dual mandate. It will be a delicate balancing act.”

Security Bank expects the BSP to cut rates by a total of 50 basis points (bps) this year through 25-bp cuts at each of its June and October meetings.

Mr. Taningco said the interest rate is not yet a concern for now. “It’s not yet that necessary to (move in) lockstep (with the Fed), because of the uncertainties,” he said.

“But if you ask me now, it’s safer to lockstep. If the Fed cuts now, then we can cut as well, hypothetically.”

The BSP unexpectedly left the benchmark rate unchanged at 5.75% at its Feb. 13 meeting. BSP Governor Eli M. Remolona, Jr. said the pause was due to “global trade uncertainties.” This after the central bank cut rates at three straight meetings since it began its easing cycle in August.

Meanwhile, Security Bank expects the peso to end at P58-per-dollar level this year. He also said the peso is unlikely to breach the record-low P59 mark this year.

“Across the board, the new risk of a trade war would be much higher, and the implication on the market is, the dollar will have to weaken, although it’s a risk-haven currency.”

The peso closed at P57.88 per dollar, strengthening by five centavos from its P57.93 finish on Tuesday.

On the other hand, Mr. Taningco said that growth will be supported by election-related spending ahead of the May polls.

“Historically, GDP is high during an election year compared to the prior election year. So, there’s an upside this year versus last year,” he said.

FASTER CONSUMPTION
Meanwhile, UBS Investment Bank Global Research expects Philippine GDP to expand by 5.9% this year, faster than 2024 amid a recovery in domestic consumption and investments.

“We see an improving growth outlook for the Philippines. We forecast GDP growth to accelerate from 5.6% in 2024 to 5.9% in 2025, which is close to trend,” UBS Investment Bank Global Research ASEAN and Asia Economist Grace Lim said in a webinar on Wednesday.

“The underlying positive growth is driven by domestic demand as both investment and consumption accelerate into 2025,” she added.

Ms. Lim said household consumption will be supported by labor market growth and easing food inflation.

“The labor market is still holding up and the unemployment rate has been low and stable at around 3%,” she said.

Private consumption, which accounts for about three-fourths of the economy, grew by 4.8% in 2024, slowing from 5.6% in 2023.

The unemployment rate fell to a record-low 3.8% in 2024, equivalent to 1.94 million jobless Filipinos.

“On the basis of gradually falling food prices as some of the supply constraints ease and resilient labor incomes, we still expect consumption to recover gradually from the second quarter of 2025 onwards, after a period of high inflation had weighed on consumer sentiment,” Ms. Lim said.

Headline inflation accelerated by 2.9% in January, steady from December.

However, food inflation alone accelerated to 4% from 3.5% in December and 3.3% in 2024.

Ms. Lim noted food inflation could see some volatility due to food supply shocks stemming from weather-related risks.

“In addition, we think that government spending can provide some support to growth, particularly in the first half of 2025… We also expect private investment to recover gradually as financial conditions become less restrictive and as consumer sentiment also gradually picks up,” Ms. Lim added.

Further monetary easing by the BSP, as well as the cut in banks’ reserve requirement ratio, is expected to boost private investments.

UBS said it expects the BSP to cut rates two times this year, once in April and then in September.