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The Philippines’ free trade agreement (FTA) with South Korea is expected to continue encouraging Korean companies to make investments here and help bilateral trade rebound despite a challenging global environment, according to the Embassy of the Republic of Korea in the Philippines.

“Despite current fluctuations in Korea-Philippines trade, driven by geopolitical uncertainties and a downturn in global demand, the FTA is expected to significantly mitigate downward pressures,” Korean Embassy Commercial Attaché Taehyung Kim told BusinessWorld.

Philippine exports to South Korea declined by 20.1% year on year to USD 1.29 billion in the first five months of the year, data from the Philippine Statistics Authority showed.

Mr. Kim said he expects the FTA to help bilateral trade between the two countries recover once the global environment improves.

“With geopolitical uncertainties easing and global demand rebounding, we anticipate that the growth in Philippine exports to Korea, coupled with increased Korean investment, will positively impact trade between our two countries,” he said.

“In this evolving landscape, the Korea-Philippines FTA will play a crucial role by providing institutional stability for the mutually beneficial growth of both nations.”

Mr. Kim added that he has observed “a notable upward trend in investments from Korean companies into the Philippines.”

Citing data from the Philippine Economic Zone Authority (PEZA), he said, “Korea is the number one and most significant investor country for the first half of this year.”

“This surge in Korean investment is largely attributed to the Korea-Philippines FTA coming into effect, coupled with the Philippine government’s strong commitment to improving the investment climate,” said Mr. Kim.

In particular, he said that the government’s initiatives like the Corporate Recovery and Tax Incentives for Enterprises to Maximize Opportunities for Reinvigorating the Economy Act and the Luzon Economic Corridor have helped spur interest.

In the first semester, the PEZA approved 133 projects worth P72.36 billion, of which 14.87% came from South Korea.

PEZA Director-General Tereso O. Panga also said that increasing Korean investments can be partly attributed to the FTA.

“This agreement is anchored on expanding trade through enhanced market access, fostering robust economic cooperation, and attracting investments — particularly in key sectors such as critical minerals and supply-chain development,” Mr. Panga said in a Viber message.

“The Philippines stands to benefit from this FTA, which opens more opportunities for investors, increased market access, FDI (foreign direct investment) inflows, higher value-added production, and export diversification combined with deeper economic cooperation and innovation partnership,” he added.

Mr. Kim said the Philippines’ workforce, strategic location, and dynamic economy have helped attract Korean firms.

“Already, many Korean companies in sectors like semiconductors, auto parts, and apparel are achieving mutually beneficial growth here in the Philippines. Notably, last year also saw significant new investments from a Korean company in the shipbuilding sector,” he said.

“We expect Korean companies to continue bolstering reciprocal economic cooperation by contributing to the creation of quality jobs, revitalizing local economies, and advancing industrial structures within the Philippines.” — Justine Irish P. Tabile, Reporter

Below target June inflation gives the Bangko Sentral ng Pilipinas (BSP) room to continue its easing cycle this year, but unexpected price shocks and the US Federal Reserve’s rate path could affect this outlook.

Finance Secretary and Monetary Board member Ralph G. Recto said in a statement on Friday that the lower-than-expected June inflation print “provides more room for the BSP to further cut policy interest rates to help us further boost the spending power of Filipinos, drive in more investments, and grow the economy, especially amid rising global uncertainties.”

“With the outlook for inflation remaining favorable and recent guidance from the BSP leaning dovish, another rate cut in the coming months is possible,” Bank of the Philippine Islands Lead Economist Emilio S. Neri, Jr. said in a note.

Inflation picked up to 1.4% in June from 1.3% in May, the Philippine Statistics Authority reported on Friday.

Still, this was slower than the 3.7% clip in June last year and was within the central bank’s 1.1% to 1.9% forecast for the month. This was also just below the 1.5% median estimate in a BusinessWorld poll of 17 analysts.

June marked the fourth straight month that inflation settled below the BSP’s 2-4% annual target.

For the first six months, headline inflation averaged 1.8%, slightly higher than the central bank’s baseline forecast of 1.6%.

BSP Governor Eli M. Remolona, Jr. said on Thursday that the central bank has room for two more rate cuts this year amid moderating inflation and weak economic growth.

The Monetary Board on June 19 delivered a second straight 25-basis-point (bp) cut to bring the policy rate to 5.25%. It has now lowered benchmark interest rates by a cumulative 125 bps since it started its easing cycle in August last year.

Its remaining policy meetings this year are scheduled for Aug. 28, Oct. 9, and Dec. 11.   

Mr. Neri said the consumer price index is expected to stay below 2% in July and August amid easing rice prices.

Rice inflation contracted for the sixth straight month to 14.3% in June, the biggest drop since 1995. National Statistician Claire Dennis S. Mapa earlier said he expects rice prices will likely be negative until the end of the year.

“However, favorable base effects may start to fade by September, with inflation likely to return to 3% by November. This outlook excludes any supply shocks from the upcoming typhoon season. Inflation could be higher if a strong typhoon hits the agriculture sector,” Mr. Neri said.

Ten to 14 tropical cyclones are expected to enter the Philippine area of responsibility this year, according to the Philippine Atmospheric, Geophysical and Astronomical Services Administration.

Mr. Neri said the “biggest risk” to the further monetary easing by the BSP is uncertainty over the US Federal Reserve’s own rate cut cycle.

“It is still uncertain whether the Federal Reserve will cut rates this year, and US inflation data in the next two months will be crucial in determining the likelihood of a Fed cut in September,” he said.

“There’s a risk that tariffs have not been fully passed on to consumers as many US companies imported heavily before April to cushion the impact. If inflation in the US picks up, the Fed may delay the rate cuts, which could weaken the peso and limit the BSP’s room to maneuver.”

President Donald J. Trump has demanded immediate rate cuts, but Fed officials have said that with inflation risks rising there is no need to ease policy unless the job market begins to weaken in a significant way, Reuters reported.

New inflation data will be released in about two weeks, and Fed Chair Jerome H. Powell has said that if inflation does rise due to tariffs, it will likely begin happening this summer.

The Fed last month left its benchmark overnight interest rate in the 4.25%-4.5% range, where it has been since December. The decision has drawn fury from Mr. Trump, who feels that recent weak inflation means the central bank should be sharply reducing its policy rate. He has asked Mr. Powell to resign.

Mr. Powell, who has said he intends to serve out a term as chair that ends on May 15, on Tuesday last week reiterated the central bank’s plans to “wait and learn more” about how much tariffs push up on inflation before lowering rates again.

Rate futures show traders are back on board with that vision, with financial market bets pointing to a September start to rate cuts and a total of just two quarter-point reductions by yearend, not the three rate cuts that they had earlier favored.

Pantheon Macroeconomics Chief Emerging Asia Economist Miguel Chanco said they expect two more 25-bp cuts from the BSP before the year ends.

“Our 1.8% full-year average forecast for this remains appropriate, with risks tilted to the downside, and we expect to see this average rate rising to a still-modest 2.6% next year, comfortably within the BSP’s 2-to-4% target range,” he said in note.

For its part, Citigroup, Inc. said inflation is expected to remain below the central bank’s target until the first quarter of 2026 amid slowing external and domestic demand.

It said it expects the Monetary Board to deliver 25-bp cuts at its August and October reviews. It also sees another 25-bp reduction at the policy-setting body’s first meeting in 2026, which will likely be held in February.

Citigroup sees headline inflation averaging 1.7% this year.

“Our forecasted trajectory reflects easing year-on-year disinflation in food on rice prices, largely as base effects kick in from the second half of 2025, even as prices rise sequentially,” it said.

“We also expect steady or slightly higher inflation in services such as recreation and education. This, however, could be offset by increased disinflation from utilities and fuel prices, especially after the recent pullback in oil prices. Risks may be tilted to the downside, especially if food inflation continues to fall sequentially.”

Mr. Neri likewise said that inflation will stay manageable as long as Brent crude’s price stays below $85 per barrel.

“The recent ceasefire in the Middle East has led to a decline in oil prices, easing the impact on inflation,” he said. — Aubrey Rose A. Inosante with Reuters

Exports from the Philippines will have difficulty competing if the US restores its 17% reciprocal tariff rate, particularly after Vietnam was granted a favorable trade deal last week, the Foreign Buyers Association of the Philippines (FOBAP) said.

FOBAP President Robert M. Young said Vietnam struck a deal with the US that lowered its tariff to 20% from the 46% originally announced in early April.

“Presuming we have the 17% tariff … the latest Vietnam-US deal will definitely hinder our chances of competing in a price war,” Mr. Young said via Viber.

“To start with, even prior to Trump’s reciprocal tariff, Vietnam had a 10-15% lower free on board selling price compared to the Philippines,” he added.

He said Vietnam’s pricing advantage is due to its 50% lower wages and modern infrastructure.

“Realistically, there’s no contest between us. However, as FOBAP has been advocating, we, with the government, must seriously exert all efforts to improve in order to remain on the radar of the foreign buyers,” he added.

However, he said if the Philippines retains its current 10% tariff, “it may give some elbow room, but it will still not be easy to beat Vietnam prices.”

“The best scenario, in our opinion, is the relocation of the Vietnamese and other countries’ manufacturers to Philippine soil,” he added.

Last week, US President Donald J. Trump announced that he will impose a “lower-than-promised” 20% tariff on Vietnamese goods.

Under the US-Vietnam deal, transshipped goods through Vietnam will be subject to a 40% tariff, Reuters reported.

Philippine Institute for Development Studies Emeritus Research Fellow Rafaelita M. Aldaba said Vietnam’s new tariff structure “is a significant reduction from the earlier tariff rate of 46% announced in April, reducing Vietnam’s trade exposure risk.”

“However, the full implications of this deal will remain uncertain until the detailed provisions are finalized,” she said via Viber.

“For the Philippines, this development underscores the need for a strategic response. As Vietnam intensifies efforts to upgrade its industrial base and shift toward higher-value exports such as semiconductors, the Philippines must act decisively,” she added.

She said the Philippines must invest in critical infrastructure, negotiate market access, and address sector-specific constraints.

“Strengthening our competitive position in priority industries is crucial to ensuring that the country can capitalize on emerging opportunities in the rapidly evolving global supply chain landscape,” she added.

Philippine Chamber of Commerce and Industry (PCCI) President Enunina V. Mangio cited the need “to revisit our supply chain, technology, and our processes. Because if we can automate to improve our processes and reduce our costs, probably that would minimize the impact of all these things.”

Speaking to reporters on Friday, she added: “All our economic managers are working very hard in addressing the impact of tariffs and the increase of prices. As a matter of fact, right now, I think they are trying to negotiate for a free trade agreement with the US to lessen the impact of the tariff increase.”

“Let us wait and see for the final rate that will be implemented and imposed on us. And if that happens, I think the business sector will be ready. We just have to make our operations very efficient to at least reduce our costs,” she added.

She said the PCCI is also hoping for a review of the cost of logistics, charges, and taxes as another way to mitigate the impact of the tariff.

US tariffs on most trading partners are subject to a 90-day pause since the reciprocal tariffs were first announced in early April. Pending the completion of talks with various trade delegations, the US is charging most imports 10%. — Justine Irish D. Tabile, Reporter

The Bangko Sentral ng Pilipinas (BSP) on Thursday said there is room for two more rate cuts this year as inflation remains benign.

“There’s room [to cut] because inflation is low, and growth is a bit lower also. Except that the cuts cannot really compensate entirely for the slowdown in growth,” BSP Governor Eli M. Remolona, Jr. told reporters.

The BSP last month cut the target reverse repurchase rate by 25 basis points (bps) to 5.25% from 5.5% amid a moderating inflation outlook and weaker-than-expected first-quarter economic growth.

Inflation cooled to an over five-year low of 1.3% in May. This brought the five-month average to 1.9%, slightly below the BSP’s 2-4% target band.

A BusinessWorld poll of 17 analysts yielded a median estimate of 1.5% for June inflation, which is scheduled to be released on Friday (July 4).

Asked if slowing inflation gives the BSP room to cut, Mr. Remolona replied: “Absolutely.”

When asked if this would mean two rate cuts this year, he replied: “It’s possible. We still have meetings in August, October, and December.”

“The slowdown in (first-quarter) growth was due to uncertainty. Big-ticket consumption items and investments were postponed, and exports slowed down,” Mr. Remolona said in mixed English and Filipino.

The Monetary Board’s remaining policy meetings this year are scheduled for Aug. 28, Oct. 9, and Dec. 11.   

Mr. Remolona said the central bank will remain data dependent before deciding if more rate cuts are needed to support economic growth.

The Development Budget Coordination Committee (DBCC) cut the gross domestic product (GDP) growth target to 5.5-6.5% for this year from 6-8% previously, due to heightened global uncertainties stemming from the US trade policy shifts and the conflict in the Middle East.

The DBCC also narrowed the GDP growth target range to 6-7% for 2026 to 2028 from 6-8% previously.

Mr. Remolona said the revised DBCC growth targets were more “realistic.”

However, he said the BSP will keep its 2-4% inflation target for now.

The DBCC narrowed its inflation assumption for 2025 to 2-3% from 2-4% previously but retained the 2-4% outlook for 2026 to 2028.

Union Bank of the Philippines, Inc. Chief Economist Ruben Carlo O. Asuncion said in a Viber message that he still expects just one more rate cut this year.

“Nevertheless, the door is now open for a second if conditions warrant it. The revised DBCC targets, the improved inflation outlook, and the global and domestic headwinds (slower global growth, geopolitical tensions, and domestic risks like oil prices and rice tariffs are being closely monitored by the BSP) are some of the factors that may justify a more accommodative stance to support growth,” Mr. Asuncion said.

Reyes Tacandong & Co. Senior Adviser Jonathan L. Ravelas said in a Viber message the BSP could implement two more rate cuts this year as long as inflation remains in the low 2% range.

Wage hike

Meanwhile, Mr. Remolona said the PHP 50 daily wage increase for minimum wage earners in Metro Manila could have an impact on inflation.

“There could maybe be a little, but we will still analyze it,” he said.

Starting July 18, about 1.2 million workers in the National Capital Region and nearby cities and provinces will get a P50 daily wage increase — the highest pay hike ever granted by the National Wages and Productivity Commission.

The daily pay hike is equivalent to a P1,100 per month increase for a five-day work week or a P1,300 increase for those working six days a week, the Department of Labor and Employment said. — Aaron Michael C. Sy