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Moody’s Analytics trimmed its economic growth forecasts for the Philippines to below 6% for this year and 2026, reflecting the impact of uncertainties arising from the United States’ tariff policies.

However, Moody’s Analytics economist Sarah Tan said the Philippines still stands out as one of the fastest-growing economies in Southeast Asia.

Moody’s Analytics projects Philippine gross domestic product (GDP) to grow by 5.9% this year, slightly slower than its 6% baseline forecast in November.

For 2026, it also trimmed its Philippine GDP growth projection to 5.8% from 6.1% previously.

If realized, these forecasts would both fall short of the government’s 6-8% target for 2025 and 2026.

“While the expected growth is shy of the government’s target, it will mark the strongest expansion in three years,” Ms. Tan said in a webinar on Wednesday.

“Private consumption and investment will be the key driver of growth in the Philippines, supported by a stable inflation and easing monetary policy.”

Household spending typically accounts for about three-fourths of the Philippine economy.

On the other hand, Ms. Tan said the growth outlook was downgraded to account for the impact of recent US tariff policies.

Moody’s Analytics Head of Japan and Frontier Market Economics Stefan Angrick said the previous forecasts were produced in November before US President Donald J. Trump was elected president.

Since taking office in January, Mr. Trump has imposed a 20% levy on all Chinese imports; 25% tariffs on imports from Canada and Mexico, as well as duties of 25% on all steel and aluminum imports.

“Anything that happens outside the region, trade friction will depress growth elsewhere in the world. That will then feed into aggregate demand and depress growth in the Asia-Pacific region indirectly,” Mr. Angrick said.

“For (Asia-Pacific) overall, we expect GDP growth this year to come in just north of 3.5%, which is down from about 4% last year.”

The region is more exposed to these risks as it is dependent on free trade and is subsequently more vulnerable to a slowdown in global trade, Mr. Angrick said.

However, he noted that some parts of Southeast Asia do not heavily export to the US.

“The direct exposure to changes in the US tariff regime is more moderate,” he added.

Ms. Tan said the Philippines’ reliance on exports is “pretty small” compared with its neighbors.

“The impact of Trump policies on the Philippine economy is not as large as what we’re seeing in other countries, maybe like in Thailand or Indonesia,” she said.

“But the reciprocal tariffs or any tariffs that come from the US will definitely hurt the Philippine exporters, only because the US is the largest export destination for the Philippines.”

Mr. Trump has also threatened to impose reciprocal tariffs on countries that tax US imports as early as April.

“It is unlikely to leave a huge dent on the macroeconomy, but it will definitely hurt these exporters and manufacturers,” Ms. Tan added.

The US is the top destination for Philippine-made goods. Last year, Philippine exports to the US were valued at USD 12.12 billion or nearly 17% of total export sales.

Easing inflation

Meanwhile, Moody’s Analytics expects headline inflation to remain within the central bank’s 2-4% target until 2026.

“This year, we are expecting inflation to ease further and interest rates to go down even more and so that will boost private spending and investment,” Ms. Tan said.

Moody’s Analytics sees inflation averaging 2.8% this year and 3% in 2026.

The Bangko Sentral ng Pilipinas’ (BSP) baseline forecast for inflation is at 3.5% for both 2025 to 2026. Accounting for risks, inflation could hit 3.7% in 2026.

Moody’s Analytics Chief APAC Economist Steve Cochrane said central banks in the region will be able to further support their economy by reducing interest rates.

“It may be a very slow process, but there will be some continued normalization of rates going forward,” he added.

The BSP last month opted to keep its key rate steady at 5.75% amid global trade uncertainties.

However, BSP Governor Eli M. Remolona, Jr. has said they are still on an easing cycle, signaling the possibility of a 25-basis-point (bp) cut at the Monetary Board’s meeting on April 10.

Ms. Tan said they expect the BSP to cut by 50 bps to 5.25% by the end of 2025.

“As US tariffs could slow global demand and the pace of interest rate normalization, the Philippine central bank will be more cautious about monetary easing to avoid significant weakening of the peso,” she said.

Structural reforms

Meanwhile, the International Monetary Fund (IMF) separately said that Southeast Asia, including the Philippines, could stand to benefit from the “ambitious” reform packages.

“Countries such as Indonesia, Malaysia, the Philippines, Thailand, and Vietnam — the five largest emerging markets out of 10 economies in the Association of Southeast Asian Nations (ASEAN) — could increase long-term real economic output,” IMF economist Anne-Charlotte Paret Onorato said in a blog.

On average, the IMF said growth in these economies could increase by 1.5% to 2% after two years and even as high as by 3% after four years if “comprehensive and simultaneous economy-wide reform packages” are implemented.

These reforms not only support faster potential growth but also help economies attain higher income levels, it said.

“Wide-ranging reforms can build resilience to shocks in the face of uncertainties and help the private sector drive growth,” it said, but noted these reforms often entail “substantial political economy challenges.”

The main structural areas these economies must address include trade openness, the IMF said.

“While the six main ASEAN economies are generally more open than the average emerging market in the Group of 20, these countries still have more barriers to trade  —and are relatively harder to trade with,” Ms. Onorato said.

“Improving logistics and trade facilitation to make cross-border transactions faster, cheaper, and less uncertain would help the five largest ASEAN emerging market countries boost economic growth.”

The multilateral institution also called for the need to address the “lagging services trade.”

The Philippines’ trade in services fell by 19.8% to USD 14.58 billion in 2024 from USD 18.18 billion in 2023, latest data from the central bank showed.

This as service exports rose by just 7.5% year on year to USD 51.98 billion from USD 48.33 billion compared with imports, which jumped by 24% to USD 37.4 billion from USD 30.15 billion.

This could help “maximize pro-competitive gains and technological spillovers, while creating high quality jobs,” the IMF said.

“In fact, the transition to a more services-based economy by emerging markets does not mean that the scope for catching-up with advanced economies’ income levels would be diminished — however, making the most of it requires facilitating the transition to highly productive services.”

The IMF noted the need for high-quality education and more apt job-matching to enhance productivity.

ASEAN economies must also improve investment attractiveness and further boost financial inclusion, it added.

“On human development, it is striking that all major ASEAN emerging market countries enjoy a demographic advantage relative to benchmarks,” Ms. Onorato said.

“In other words, they generally have relatively more people working than dependents (such as children and elderly individuals). Therefore, there is an opportunity to implement reforms now before aging populations increase fiscal burdens such as pensions and healthcare.”

Moving forward, the IMF said deliberate and ambitious structural reform packages can help bolster sustainable and inclusive growth.

“A major simultaneous reform package improving business and external regulation, governance, and human development could raise output levels by up to 3% after four years. The benefits from enacting a single major economic reform would be more modest.”

These reforms can also make economies more resilient amid external headwinds.

“Amid a shock-prone global environment, ambitious economy-wide structural reforms can also help build resilience by fostering diversified, broad-based, inclusive growth at the domestic level, and ensuring a credible and robust institutional framework to further unleash private sector-driven growth.” — Luisa Maria Jacinta C. Jocson

The Bangko Sentral ng Pilipinas (BSP) expects the country’s balance of payment (BoP) position to swing to a deficit this year, as well as post a wider current account deficit, largely due to global trade volatilities.

“The Philippine BoP position is projected to be weaker in 2025-2026 due to slower global trade and subdued investor confidence linked to increased uncertainty in global trade policy and geopolitical developments,” it said in a statement late on Monday.

“The outlook nevertheless reflects sustained expansion in the domestic economy, supported by easing inflation and less restrictive monetary policy.”

The central bank’s latest projection shows the overall BoP will register a deficit of USD 4 billion this year, equivalent to -0.8% of gross domestic product (GDP).

This is a reversal from its earlier forecast of a USD 2.1-billion surplus (0.4% of GDP) for 2025.

In 2024, the BoP position stood at a surplus of USD 609 million, plunging by 83.4% from the USD 3.672-billion surplus at end-2023.

The BoP provides a glimpse of the country’s transactions with the rest of the world. A deficit indicates that more funds exited the economy while a surplus shows more money entered than left.

The BoP deficit is expected to widen to USD 4.3 billion next year but still at -0.8% of GDP.

“For 2026, the overall BoP is anticipated to remain in deficit, consistent with the expected widening of the current account deficit relative to the 2025 forecast,” the BSP said.

The central bank said sustained financial account net inflows will support the BoP outlook next year, but cited persisting downside risks, such as trade uncertainties, weak global growth and geopolitical tensions.

“The overall BoP position is expected to show a deficit in 2025 and in 2026, with a wider current account gap resulting from a higher trade-in-goods deficit and lower net receipts in trade-in-services,” the BSP said.

Meanwhile, the current account deficit — which covers transactions involving goods, services, and income — is expected to reach USD 19.8 billion this year, equivalent to -3.9% of economic output.

This is wider than its earlier forecast of a USD 12.1-billion current account deficit (-2.4% of GDP).

For 2026, the current account deficit is projected to hit USD 21.2 billion (-3.9% of GDP).

Latest data from the BSP showed the current account deficit widened by 41.4% to USD 17.5 billion last year from USD 12.39 billion in 2023.

This also marked the second-largest current account deficit on record, after the USD 18.3-billion gap recorded in 2022.

Modest exports growth

Meanwhile, the BSP lowered its goods exports growth forecast to 1% this year from 4% previously. It expects goods exports to expand by 2% next year.

“Merchandise exports are anticipated to record modest growth in 2025 and 2026 after two consecutive years of decline in 2023 and 2024.”

“Semiconductor exports will see flat growth in 2025, attributed largely to the ongoing inventory correction and as the industry works to keep pace with the rapidly evolving global demand.”

The BSP also trimmed its growth projection for goods imports to 4% from 5% earlier. Goods imports are seen to grow by 4% in 2026.

Service exports’ growth was also slashed to 8% from 10% previously. The BSP expects service exports to grow by 8% next year.

It said that service exports are seen to register a “modest expansion” amid weaker business process outsourcing (BPO) services.

“The outlook for BPO services incorporates the adverse impact of the US job reshoring agenda, as well as the domestic challenges in the supply of skilled workers in Generative AI and data analytics.”

This could “hamper industry efforts to climb up the value chain and maintain competitiveness,” it added.

BPO revenues are seen to grow by 5% this year and in 2026. This was a tad slower than the previous forecast of 6% for 2025.

Travel receipts are projected to expand by 11% this year, much slower than its previous forecast of 20%.

“Growth in Philippine tourism activity is expected to return to its pre-pandemic trend supported by the continued influx of international tourists, particularly from Korea and Japan,” it added.

On the other hand, the BSP anticipates service imports growth to accelerate to 14% this year from 8% previously. Its 2026 growth forecast is at 12%.

“Overseas Filipino (OF) remittances are expected to grow slightly below the long-term trend as major OF host economies, such as Saudi Arabia and Qatar, increasingly advocate for the localization of their workforce, affecting OFWs’ (overseas Filipino workers) deployment prospects,” it said.

The central bank also trimmed its cash remittance growth projection to 2.8% this year from 3% earlier. Cash remittances are expected to grow by 3% next year.

However, the United States’ harsher immigration policies are seen to have a minimal effect on remittance flows, the central bank said.

“Most US-based Filipinos are composed of permanent residents and documented migrants and fewer than 1% of total land-based OFWs are deployed in the US.”

Meanwhile, the BSP said the financial account will be “buoyed by sustained net inflows from both foreign direct and portfolio investments.”

“Investor interest will be supported by the country’s macroeconomic fundamentals, along with ongoing reforms to enhance the ease of doing business, optimize tax incentives, and improve capital market efficiency.”

Financial account outflows could reach USD 16.2 billion this year and USD 17.8 billion in 2026.

The financial account records transactions between residents and nonresidents involving financial assets and liabilities.

The country’s exit from the Financial Action Task Force “gray list” will also boost investor confidence, the BSP said.

“Investment gains, however, may be tempered by a pause in US monetary policy easing, which would limit capital flows to emerging market economies, including the Philippines,” it added.

The BSP also cut its forecast for foreign direct investment inflows to USD 9 billion in 2025 from USD 10 billion previously.

On the other hand, the net foreign portfolio investment projection was raised to USD 3.9 billion from USD 3.1 billion.

“The country’s gross international reserves (GIR) level is projected to decline slightly in 2025 and 2026 compared with 2024, reflecting reduced foreign exchange inflows from the exports of goods and services, as well as investments.”

The GIR is forecast to reach USD 105 billion for this year, lower than the USD 110 billion it projected earlier.

Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said that the weaker BoP outlook was due to US President Donald J. Trump’s tariff policies, which could dampen global growth, investments and trade.

“As a result of all of these, Philippine exports could slow down amid slower global trade and could widen the country’s trade deficit and, in turn, the current account deficit,” he said.

Mr. Ricafort said foreign direct investments could slow due to Mr. Trump’s “America first” policies, while foreign portfolio investments could be affected by increased volatility in markets.

“Softer world GDP could also slow down growth in BPO and other services export revenues, as well as slow down foreign tourism revenues,” he added.

Outlook

Meanwhile, the BSP said domestic growth prospects could “provide a cushion against global headwinds.”

“Domestic expansion driven by private consumption, investments, including government infrastructure spending, as well as continued progress on legislative reforms to improve the business environment should encourage foreign investments and positively impact the external sector outlook in the near to medium term.”

The government expects growth to range between 6% and 8% this year and in 2026.

The BSP earlier said it expects GDP to settle near the lower bound of the target range from this year to the next.

The central bank said global economic growth is seen to remain soft from this year to the next amid the United States’ uncertain trade policies.

“Global growth prospects are expected to be further dampened by several factors, including the ongoing weakness in the Chinese economy, prolonged geopolitical tensions in conflict zones of the Middle East and Eastern Europe, and commodity price volatility.” – Luisa Maria Jacinta C. Jocson, Reporter

The Philippines has secured PHP 65.43 billion worth of loans from Japan to fund big-ticket infrastructure projects such as a four-lane bypass road in Davao City and two major flood control projects in Metro Manila.

The five financing agreements were signed by Finance Secretary Ralph G. Recto and Japan International Cooperation Agency (JICA) Country Chief Representative Baba Takashi during a high-level meeting on Monday, the Department of Finance (DoF) said in a statement.

“We are deeply grateful to the government of Japan for its confidence in our ability to turn these projects into realities. On the part of the Philippine government, we will honor this trust by ensuring that every peso, every yen, and every commitment made today translates into real improvements to the people we serve,” Mr. Recto was quoted as saying.

“Indeed, Japan is not just a friend in words but in action. And today is just one of the many proofs that our friendship is growing stronger each day through concrete efforts.”

The Davao City Bypass Construction Project (III) will receive financing worth JPY 46.34 billion (around PHP 17.67 billion). The project involves the construction of a 45.5-kilometer, four-lane bypass road that aims to improve mobility and facilitate trade in Davao City.

The Pasig-Marikina River Channel Improvement Project Phase IV (II) will get funding worth JPY 45.76 billion (around PHP 17.45 billion). The project will involve measures to control flooding in Metro Manila, such as the construction of dikes, revetments, flood gates, as well as channel dredging.

Japan will also provide JPY 14.48 billion (PHP 5.52 billion) in financing for the Cavite Industrial Area Flood Risk Management Project (II). The project also seeks to reduce flood risks in the lower San Juan River Basin and Maalimango Creek Drainage Area.

The DoF and JICA also signed agreements to provide budget support financing for climate change and health initiatives.

The Climate Change Action Program (Subprogram 2) will receive JPY 35 billion (around PHP 13.35 billion) “to boost climate adaptation, mitigation, and disaster preparedness initiatives.”

On the other hand, the Build Universal Health Care program (Subprogram 2) will receive JPY 30 billion (PHP 11.44 billion) to boost access to healthcare as well as address “gender-specific needs and climate-related health concerns.”

Mr. Recto and National Economic and Development Authority (NEDA) Secretary Arsenio M. Balisacan led the Philippine delegation to the 15^th Philippines-Japan High-Level Joint Committee Meeting on Infrastructure Development and Economic Cooperation.

The meeting was aimed at accelerating the rollout of Japan-supported projects in the Philippines.

The Japanese delegation was led by Mori Masafumi, special adviser to the Japanese prime minister.

According to the DoF statement, Japan is in discussions with the Philippines to support more infrastructure projects. These include the Central Mindanao High Standard Highway, the second San Juanico Bridge Construction Project, the Flood Control and Drainage Project in Davao City, the Paranaque Spillway Project, the National Public Broadcasting Digital Terrestrial Broadcasting Network Development Project, and the Magat Dam Reconstruction Project.

“The Philippine government likewise presented prospects for future infrastructure development with a specific focus on public-private partnership (PPP) integration and official development assistance (ODA) financing as the country makes its ascent to upper middle-income status,” the DoF said.

Under the World Bank’s classification, the Philippines is still a lower middle-income country but is on track to move to middle-income status by 2026. Once the Philippines reaches upper middle-income status, the country will lose access to ODA loans that are typically long-term and have low interest rates.

According to the latest ODA portfolio review, Japan was the biggest source of loans and grants with $12.07 billion or 32.36% of the $37.29-billion total value in 2023.

At the same time, the DoF said the Japanese government reaffirmed its commitment to support the administration’s “Build Better More” program during the meeting, as well as ways to fast-track the rollout of major projects funded by Japan.

These include the Metro Manila Subway Project (Phase I), the North-South Commuter Railway Project, the Metro Rail Transit Line 3 Rehabilitation Project, the Dalton Pass East Alignment Road Project, and the Metro Manila Priority Bridges Seismic Improvement Project.

Meanwhile, the World Bank has sought input from the NEDA as it prepares for the formulation of their Poverty and Equity Assessment (PEA) report.

Mr. Balisacan met with World Bank Country Director for the Philippines, Malaysia, and Brunei Zafer Mustafaoğlu on March 20.

The World Bank conducted a poverty assessment for the country in 2001 and 2018.

“They now seek to create an updated version in light of the country’s recent economic and poverty developments. The World Bank’s consultation with NEDA is among one of the many efforts to ensure that our inputs will be used as reference in the contents of the PEA,” the NEDA said in a Viber message. — A.R.A. Inosante