ADB cuts Philippine growth forecast

The Asian Development Bank (ADB) trimmed its gross domestic product (GDP) growth projection for the Philippines this year, though this still places it among the fastest-growing economies in Southeast Asia.

In its latest Asian Development Outlook (ADO), the multilateral lender lowered its growth forecast for the country to 6% this year from its 6.2% projection in December.

This would be faster than the 5.6% GDP growth in 2024. It would also hit the lower end of the Philippine government’s 6-8% growth target band for the year.

However, the ADB noted these forecasts do not yet consider US President Donald J. Trump’s “reciprocal” tariffs went into effect on April 9.

ADB Senior Economics Officer Teresa B. Mendoza said the slight downgrade accounted for the “lower-than-expected turnout in the (fourth) quarter of 2024 because we have seen household spending growth moderated more than we expected.”

“This was also actually as an effect of the lingering impacts of high inflation for most of the year, although it trended lower in the second half after the fourth quarter, and also the lagged impacts of tight monetary policy,” she said at a briefing on Wednesday.

Philippine economic growth this year will be driven by “strengthening domestic demand and sustained public investment,” according to the report.

“Sound macroeconomic fundamentals and structural reforms support a sustained positive outlook, with growth projected at 6% this year and 6.1% in 2026,” Ms. Mendoza said.

In Southeast Asia, the Philippines is projected to be the third-fastest-growing economy this year, just behind Vietnam (6.6%) and Cambodia (6.1%).

It is ahead of Indonesia (5%), Malaysia (4.9%), Timor-Leste (4%), Lao PDR (3.9%), Thailand (2.8%), Singapore (2.6%), Brunei Darussalam (2.5%) and Myanmar (1.1%).

The Philippines’ growth forecast is also above the ADB’s projection for developing Asia, which is expected to grow 4.9% this year and 4.7% in 2026. The region includes 46 Asia-Pacific countries, but excludes Japan, Australia and New Zealand.

This year, household spending in the Philippines will be boosted by strong employment and remittances, the multilateral lender said.

The country’s private investment and business indicators have also been positive, it added.

“Modest inflation is projected at 3% over the forecast period, and monetary easing will support growth,” Ms. Mendoza said.

The ADB sees headline inflation averaging 3% in 2025 and in 2026. This is below the Bangko Sentral ng Pilipinas’ (BSP) baseline inflation forecast of 3.5% this year and next.

“While there are upside risks to inflation, including potential increases in electricity rates and transport fares, inflation is projected to remain within the 2% to 4% target through 2026,” the report said.

This outlook will also pave the way for continued monetary policy easing, it added.

“In terms of the monetary policy, what we are expecting that the BSP continue is seeing its monetary policy, but a much more gradual pace,” Ms. Mendoza said.

The BSP began its rate-cutting cycle in August last year, lowering borrowing costs by a total of 75 basis points (bps) to 5.75% by end-2024.

The central bank delivered a pause at its first policy review this year in February amid global trade uncertainties.

Markets are widely expecting the Monetary Board to resume its easing cycle with a 25-bp cut at its meeting today (April 10.).

“Further reforms to enhance the investment climate bode well. Public infrastructure investment, with its high multipliers, will continue to support growth,” the ADB added.

It cited reforms such as the Corporate Recovery and Tax Incentives for Enterprises to Maximize Opportunities for Reinvigorating the Economy (CREATE MORE) Act.

Meanwhile, the ADB also noted that the National Government’s (NG) fiscal consolidation efforts are on track.

“Additional revenues and expenditure reforms are supporting fiscal consolidation,” it said.

Treasury data showed the NG’s budget deficit shrank by 0.38% or PHP 5.7 billion to PHP 1.506 trillion in 2024. However, it exceeded the PHP 1.48-trillion deficit ceiling set by the Development Budget Coordination Committee.

This year, the NG’s deficit ceiling is capped at PHP 1.54 trillion or 5.3% of GDP.

“Programs are also being undertaken to make spending more efficient. The new government procurement law enhances project implementation and procurement processes,” Ms. Mendoza added.

However, the multilateral lender sees the current account remaining in a deficit, “as imports rise to meet aggregate demand.”

“Capital-intensive imports for infrastructure projects will remain strong. Merchandise exports will likely be subdued, with prospects uneven for major external markets,” it added.

Latest data from the BSP showed the current account deficit widened by 41.4% to USD 17.5 billion in 2024. This marked the second-largest current account deficit on record.

Risks to growth

Meanwhile, the ADB cited several downside risks to its  growth outlook.

“This includes increased uncertainty over the external environment, including significant shifts in trade and investment policies, and increased protectionism and its adverse impacts on investor sentiment,” Ms. Mendoza said.

“Heightened geopolitical tensions were also highlighted, and weather shocks could drive commodity prices higher.”

The ADO released on Wednesday did not tackle the potential impacts of the sweeping US tariffs. ADB Chief Economist Albert F. Park said they will follow the evolution of the trade policies and update the forecasts in their next ADO to be released in July.

“The situation is still unfolding as we know, so it’s very soon to tell. In July, we’ll have a better idea,” ADB Philippines Principal Country Specialist Cristina Lozano said.

“But I want to make a point that the Philippines faces these US tariffs and the potential global slowdown from a position of relative strength. The macroeconomic fundamentals are very strong,” she added.

Ms. Mendoza noted the Philippine economy is mostly driven by domestic demand, not exports.

“We’re still monitoring the impacts because there are spillover effects across various channels.”

However, the country’s services sector, a key growth driver, will likely remain unaffected by tariffs, Ms. Lozano said.

“It’s a buffer to the economy. We don’t know what’s gonna happen, but for the moment, the Philippine economy is protected because most of the exports of the Philippines are in the semiconductor sector.”

The US exempted some commodities such as semiconductors from the reciprocal tariffs.

Electronics manufacturing services and semiconductor manufacturing services account for almost half or 44.5% of Philippine export sales to the US.

Abdul Abiad, director of ADB’s Macroeconomic Research Division, said there are many different policy options that countries can explore to mitigate the impact of these tariffs.

“Negotiations are obviously another important component in terms of policy response, but really most important, especially considering how integration has benefited this region the most, actually, in the world.”

“Doubling down on open trade and investment is going to be key and is really something within the control of economies in the region, and that will take many forms.”

This could be done by diversifying export markets and strengthening current free trade agreements, among others.

“I would expect to see, especially if these tariffs from the US persist, that you’ll see this reconfiguration that will actually strengthen intra-regional integration,” Mr. Abiad added.

Ms. Lozano said these tariffs could also “reinforce the case for regional integration, especially in Asian economies.” She noted the Philippines can take advantage of its membership in the Regional Comprehensive Economic Partnership, as well as pursue free trade deals with the European Union and other countries.

“I think this renewed commitment to regional trade agreements will support positive changes, and will gain momentum, given the situation.”

Pavit Ramachandran, ADB country director for the Philippines, said there is a need to continue domestic reforms, particularly on ease of doing business, investment, climate, and logistics and infrastructure.

The government can also focus on “increasing the sophistication of the economy” as a strategy, he said.

“For the Philippines, given that 60% of their exports are electronics, and this is relatively concentrated in a few markets, I think diversification is something that is worth pursuing.”

Within Southeast Asia, the Philippines can also reinforce engagement, Mr. Ramachandran said.

“There’s also a chance to move up the value chain in services. There is an opportunity to look at moving up to more financial services, healthcare, areas around IT, even in the BPO sector, for example.”

“There is an opportunity to also streamline tariffs. I think we’re already seeing that discussion happening in terms of a negotiation strategy. So, I think that work that’s already started in the Philippines will need to continue,” he added.

Trade Secretary Ma. Cristina A. Roque earlier said they are open to lowering tariffs on US goods in response to the US imposition of a 17% reciprocal tariff on Philippine goods. – Luisa Maria Jacinta C. Jocson, Senior Reporter