Recto sees below 6% growth this year

Philippine economic growth may have picked up in the second quarter, but full-year expansion is likely to be below 6% amid uncertainty over US tariffs, Finance Secretary Ralph G. Recto said.

“I think the second quarter, for sure, will be better than the first,” Mr. Recto told reporters in an informal press chat on Wednesday.

Mr. Recto said this second-quarter forecast depends on government spending and household consumption, which accounts for over 70% of the economy.

In the first quarter, gross domestic product (GDP) grew by 5.4%, weaker than expected and slower than the 5.9% expansion in the same quarter last year.

For the full year, Mr. Recto said GDP may grow by around 5.7% to 5.8%.

“Realistically, probably 5.7%, 5.8% for the year. But there’s still a possibility, (but) it depends because there’s a lot of uncertainty — uncertainty with trade policy. There’s no final [tariff rate] yet,” Mr. Recto said.

Economic managers last month lowered the full-year growth target to 5.5%-6.5% from 6%-8% previously, “reflecting a more measured and resilient outlook amid global headwinds.”

Last week, US President Donald J. Trump announced a 20% tariff on most Philippine goods sent to the US, higher than the 17% previously announced in April.

Philippine trade negotiators are in Washington this week to secure a deal with the US.

President Ferdinand R. Marcos, Jr. will meet with Mr. Trump during his official visit to Washington from July 20 to 22.

In a Viber message to BusinessWorld, Budget Secretary Amenah F. Pangandaman said she remains confident in meeting the GDP growth target this year on the back of strong domestic demand.

“Our growth momentum is expected to be driven primarily by strong domestic demand, specifically, robust household spending and accelerated government investments in social services and critical infrastructure,” said Ms. Pangandaman, who also serves as the Development Budget Coordination Committee chairperson.

She also noted the resilient labor market and easing inflation will support growth momentum.

Inflation averaged 1.8% in the first six months of the year.

“In addition, lower inflation creates room for the Bangko Sentral ng Pilipinas (BSP) to ease monetary policy, which would help sustain consumption and domestic activity, reinforcing our growth trajectory,” Ms. Pangandaman said.

The BSP delivered a second straight 25-basis-point (bp) cut at its June 19 meeting, bringing its policy rate to 5.25%.

BSP Governor Eli M. Remolona, Jr. also signaled they could deliver two more cuts this year.

At the same time, Finance Undersecretary and Chief Economist Domini S. Velasquez said it may be difficult for GDP to grow more than 6% this year amid an expected global slowdown due to US tariffs.

She said the US tariffs have slowed international trade and “dragged down all the growth prospects of all the countries, including the Philippines.”

“We do think that the potential of the Philippines is at the minimum 6% growth. But of course, it’s quite difficult, especially now with some of the challenges that we’re seeing,” she told reporters late Tuesday.

Union Bank of the Philippines, Inc. Chief Economist Ruben Carlo O. Asuncion said it is becoming increasingly challenging for the government to reach 6% growth this year.

“Hitting the 6% midpoint will depend on how strongly domestic demand can offset external risks,” he said in a Viber message.

“Domestic demand is expected to remain resilient but cautious in the near term… Growth will be driven by everyday retail channels, but broader consumption recovery may hinge on stronger job creation and improved purchasing power,” he added.

Remittances

Meanwhile, Ms. Velasquez said the US tax on remittances would likely impact 12.8% of the Philippines’ total annual remittances.

“In our estimate, when we used the survey of overseas Filipinos, 12.8% say they’re receiving remittances from North and South America,” she told reporters on Tuesday.

US President Donald J. Trump on July 4 signed into law the “One Big Beautiful Bill,” which overhauls tax rates and spending. It imposes a 1% excise tax on cash-based remittances from the US to recipients abroad. The tax will be implemented starting Jan. 1, 2026.

Ms. Velasquez said the tax would impact around USD 1.9 billion in remittances from the US in 2026.

“For example, we estimate USD 36.5 billion in remittances by 2026, and USD 1.9 billion will be affected and will be taxed 1%,” she said.

In the first five months of the year, cash remittances grew by 3% to USD 13.77 billion from USD 13.37 billion in the comparable year-ago period.

The United States was the top source of remittances in the five-month period, accounting for 40.2% of the total. — Aubrey Rose A. Inosante, Reporter with Aaron Michael C. Sy