PH seen as a trade war safe-haven despite easing growth

Manila Skyline | PHOTO: JMS

The Philippines might grow below the government‘s target this year due to elevated borrowing costs and limited state spending, although the country’s domestic demand-driven economy may offer potential refuge in the event of a new trade war.

In a commentary, London-based Pantheon Macroeconomics said gross domestic product (GDP) is projected to grow by 5.4 percent in 2024, and by a slower pace of 5.2 percent in 2025.

In 2026, Pantheon is expecting GDP growth to further ease to 4.8 percent.

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Pantheon’s forecasts put the Philippines as the third fastest growing economy in Emerging Asia behind Vietnam and India.

But if the predictions come to pass, economic performance this year would miss the 6 to 6.5 percent target range of the Marcos administration. The same would be true in the medium-term—wherein the government is aspiring for a growth of between 6 and 8 percent from 2025 to 2028.

Pantheon said GDP expansion would be restrained by a still elevated interest rate environment and an ongoing program to cut the fiscal deficit and debt, which may prevent government spending from making bigger contributions to growth.

“Domestic-demand driven India and the Philippines will remain hampered by incomplete post-Covid fiscal consolidation and historically-tight monetary policy,” it said.

Latest data showed the Philippines economy posted a below-market consensus growth of 5.2 percent in the three months ending in September, which was the weakest reading in more than a year following the onslaught of storms that disrupted government spending and damaged farm output.

Average GDP growth stood at 5.8 percent in the first nine months. This means the economy would have to grow by at least 6.5 percent in the fourth quarter to meet the low-end of the state’s growth target for 2024.

But despite its expectation for growth to fall short of official targets, Pantheon said the Philippines—which is less reliant on exports—could be a potential refuge should US President-elect Donald Trump start a global trade war.

“Significant parts of Emerging Asia are the most exposed among EMs to the threat of US President-elect Trump to impose a 10 to 20 percent across-the-board tariff on US imports,” the think tank said.

“EM Asia isn’t homogeneous, with its domestic demand-driven demographic giants—India, Indonesia and the Philippines—offering potential refuge in the event of a new trade war,” it added.