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

Gen Zers, Millennials fuel Philippine co-working spaces

Oliver Ryan C. Oreta, 37, starts most of his workdays not in his construction company’s office, but in a rented seat at a co-working space in Ortigas.

Despite having a dedicated office in his company, he makes the daily trip from his home in Parañaque City to the Hangout Coworking Space in Tycoon Center. For him, the quiet environment offered by co-working spaces is a necessity for the kind of focus his sales and marketing role requires.

“In the office, because it is a construction firm, it’s noisy,” Mr. Oreta told BusinessWorld in an interview. “I need some space for me to think clearly… some space that’s very quiet.”

He first started renting a seat in a co-working facility in 2023, initially availing himself of day passes before eventually subscribing to a monthly membership.

He shuns working from home, citing the distractions that come with remote work. “The proximity of the working table to the bed and kitchen can be an easy distraction.”

Like many other professionals navigating a hybrid work setup, Mr. Oreta doesn’t mind spending more in exchange for comforting silence, high-speed internet and late operating hours — all fueling the growing demand for co-working spaces in the Philippines.

Janlo C. De Los Reyes, head of research and strategic consulting at JLL Philippines, said the co-working or flexible office segment is poised for growth despite increasing return-to-office mandates.

“We expect demand for the sector to be fueled by companies that continue to employ hybrid work arrangements, multinational corporations and business process outsourcing firms requiring temporary spaces for employees, and small businesses and startups that are looking for an office or address within the central business districts,” he said in a Viber message.

He noted that the appeal of co-working spaces lies in their flexibility, letting companies easily scale up or down without the long-term commitments of traditional office leases.

Data from JLL Philippines showed a healthy occupancy rate of 89.6% for co-working spaces in Makati and Bonifacio Global City in Taguig, two of Metro Manila’s key business districts.

Colliers Philippines has also observed strong demand driven by hybrid work setups, noting that many firms have yet to return to pre-pandemic leasing patterns.

“More companies have also been implementing 100% return to office, and this is a signal that landlords need to be more proactive in offering flexible lease terms,” Colliers said in an April 2 report.

The overall flexible workspace vacancy in Metro Manila rose to 17.5% at the end of last year from 16.7% a year earlier. However, Colliers noted that this was still a major improvement from the record 41% vacancy rate in the first quarter of 2021.

Fort Bonifacio led with the highest number of occupied co-working seats at 12,000; followed by Makati with 10,000; Quezon City with 7,000; Ortigas with 4,000; Mandaluyong with 2,000; Alabang, Muntinlupa with 1,000; and the Bay Area in Pasay City with 437, according to Colliers.

International Workplace Group Plc (IWG), a multinational office solution provider, is bullish on the Philippines’ flexible workspace market.

“The co-working space is the fastest-growing segment within commercial real estate,” IWG Philippines Country Manager Lars Wittig said in a video interview with BusinessWorld. He added that the departure of Philippine offshore gaming operators (POGO), which used to be major office lessees, has accelerated demand for flexible workspaces.

“The exit of POGOs is accelerating our network development because now, the partners feel an even greater urge to come to us to seek our partnership to be able to fulfill the demand for flexible workspace,” Mr. Wittig said.

President Ferdinand R. Marcos, Jr. last year ordered a total ban on POGOs due to their reported links to organized crime including human trafficking.

IWG expects to open its 50^th location in the Philippines this year and signed its 61^st center, which will be in Makati, in March.

“With the golden era for the country, the many more good jobs being created, what you do see is that the companies continue to be rightsizing — meaning downsizing their conventional leases — which again means that the demand is gravitating over to flexible workspaces,” Mr. Wittig said.

He also said hybrid work setups have become a tool to attract talent. “Employers are now offering hybrid working to attract and retain young talent who prefers this setup instead of going to the office.”

‘Chill mood’

Mr. Oreta, for his part, agrees that the younger workforce is challenging the norms of traditional office work.

“Millennials want a chill-mood kind of work,” he said. “They want to be at the beach, at the party, or wherever they want to be. They just want to do their work and chill.”

He noted that workers like him are not bound by the traditional 9-to-5 schedule. He usually stays until 2 a.m. to finish his work.

“It is nice that the conventional type of work is broken now,” he said. “Because we’re not talking about ‘this is the proper place, this is the proper thing to do.’ We are talking more of productivity.”

“We have the freedom to choose wherever we want to work, as long as your productivity is standard,” he added.

Mr. De Los Reyes said flexible workspaces are cost-effective for startups and smaller businesses, which don’t need a large office space.

Smaller players in the co-working space sector are also seeing a surge in interest, particularly from freelancers and students.

“While independent professionals still make up a big portion of our clients, we’ve also noticed a surge in small businesses and even corporate teams opting for flexible workspaces instead of traditional office leases,” Alcariza R. Peregrino, managing partner at The Hangout: Coworking Space, said in an e-mailed reply to questions.

“The demand is shifting towards spaces that are cost-efficient, collaborative and hassle-free, and that’s exactly what we offer,” she added.

The Hangout offers rates of PHP 250 for four hours, PHP 500 for eight hours, and PHP 10,500 for a full month. Students can avail themselves of hourly rates as low as PHP 70. Monthly membership for hot desks starts at PHP 7,500 and PHP 10,000 for fixed desks.

The facility also offers virtual office services — letting users list a business address without renting a physical desk — starting at PHP 3,000 a month. These include mail handling, receptionist support and day passes.

During a visit by BusinessWorld to The Hangout, professionals from diverse backgrounds were seen using the space, including an English teacher conducting lessons over Zoom and corporate workers in casual attire focused on their laptops.

Amenities include fast internet, unlimited coffee, lounges, books, board games and flexible workspace areas designed to balance work and relaxation.

“We’re proud of what we’ve built here, but we’re also looking ahead,” Ms. Peregrino said. “Our vision is to expand into more key areas like Quezon City, Manila and Makati, where demand for flexible workspaces is high.”

Monthly rental rates for flexible workspaces vary depending on the district, according to Colliers. Seats cost PHP 8,000 to PHP 20,000 in Ortigas; PHP 7,000 to PHP 18,000 in Quezon City; PHP 7,000 to PHP 19,000 in Alabang; PHP 8,000 to PHP 25,000 in Mandaluyong; PHP 8,000 to PHP 38,000 in Makati; PHP 13,000 to PHP 25,000 in Fort Bonifacio; and PHP 15,000 to PHP 20,000 in the Bay Area.

The rise in online jobs and remote work has also fueled demand for co-working spaces outside Metro Manila.

In Cavite, The Quiet Corner has emerged as the first co-working facility in Indang, Cavite. The Quiet Corner is the only co-working space in the town, making it a top choice for students, professionals and remote workers in the area, according to the firm.

“The demand has been strong due to the lack of similar workspaces nearby, and we continue to see consistent occupancy throughout the week,” it added. — Aubrey Rose A. Inosante, Reporter

Trade wars threaten Asia-Pacific sovereign ratings

Trae wars and geopolitical risks could threaten Asian economies’ credit rating, including the Philippines, S&P Global Ratings said.

“Tariffs and wars pose increased risks to Asia-Pacific sovereign ratings,” it said in a report.

“International trade frictions and military conflicts grow as threats to Asia-Pacific sovereign creditworthiness in 2025.”

Asia-Pacific sovereigns had been seeing a “positive momentum” but now face considerable risks, it said.

“These risks affect sovereign credit metrics most directly through the external and fiscal channels.”

“Economies that report current account deficits or where surpluses are small — including India, Indonesia, and the Philippines — may experience slipping external support for their sovereign ratings.”

S&P said that most of the sovereign ratings in the region are investment grade and range between “BBB” and “BBB+.”

Currently, three out of 21 sovereign outlooks remain positive, namely, the Philippines, India and Mongolia.

In November, the debt watcher affirmed its “BBB+” long-term credit rating for the Philippines, which is a notch below the “A” level grade targeted by the government. It also kept its “A-2” short-term rating for the country.

S&P Global had raised its rating outlook to “positive” from “stable.” A positive outlook means the Philippines’ credit rating could be raised over the next two years if improvements are sustained.

The credit rater said that restrictive tariff policies continue to weigh on economies in the region.

“It is uncertain whether the Trump administration could conclude trade negotiations with many countries by the end of July,” it said.

The Philippines was slapped with a 20% reciprocal tariff by the United States, higher than the 17% previously proposed. The government has said it is seeking to negotiate better terms with the US.

“S&P Global Ratings believes there is a high degree of unpredictability around policy implementation by the US administration and possible responses — specifically with regard to tariffs — and the potential effect on economies, supply chains, and credit conditions around the world.”

It also cited the persistence of geopolitical conflict as a key risk, citing the South China Sea, Taiwan Straits, and North Korea.

“However, recent events show that an increase in tension can happen. And, if not carefully handled, errors in judgment could lead to escalations that no party intended.”

These escalating geopolitical tensions could affect prices, as Asia-Pacific economies may have to pay more for energy and related imports, it said.

The Asia-Pacific region could also face further fiscal deteriorations if these risks materialize, S&P said.

“Government finances will weaken as economic performances falter. Government revenue will be dragged down, especially where exporters are important taxpayers, such as in Korea, Taiwan, and Japan.”

Analysts likewise said that these global uncertainties could be a hindrance to the Philippines’ goal of securing an “A” rating.

“These global and regional risks could hinder the Philippines’ march toward an ‘A’ rating, especially if they amplify external or fiscal weaknesses,” Leonardo A. Lanzona, an economics professor at the Ateneo de Manila University, said in an e-mail.

The government is targeting to reach “A”rating status by 2028. The Philippines holds an “A” rating with Japan-based Rating and Investment Information, Inc. (R&I) and Japan Credit Rating Agency (JCR).

However, it has yet to secure a top investment rating from the big three debt watchers. Aside from its “BBB+” rating from S&P Global Ratings, it also holds a “BBB” rating from Fitch Ratings and “Baa2” from Moody’s Ratings.

“In particular, the Philippines traditionally runs current account deficits, meaning it imports more than it exports, and relies on remittances, BPO (business process outsourcing) revenues, and foreign capital to finance that gap,” Mr. Lanzona said, but noted these inflows may become volatile amid global uncertainty.

However, Mr. Lanzona said that if the government can manage inflation, exercise fiscal discipline and deepen capital markets, meeting the “A” rating goal remains within reach. — Luisa Maria Jacinta C. Jocson, Senior Reporter

PSEi slides to 6,300 level after US inflation report

Philippine shares slid further on Wednesday, dragging the main index back to the 6,300 level, as investor sentiment was soured by inflation concerns in the United States, which could affect the Federal Reserve’s rate-cut cycle.

The bellwether Philippine Stock Exchange index (PSEi) sank by 1.88% or 121.99 points to 6,337.48, while the broader all shares index dropped by 1.55% or 59.02 points to 3,748.25.

This was the PSEi’s lowest close in three weeks or since it finished at 6,330.65 on June 26.

“The local market plunged this Wednesday as investors dealt with the rise in the US’ inflation last June and its implications on the Federal Reserve’s policy outlook. The US latest inflation print may cause the Fed to prolong their pause in their policy rate adjustments,” Philstocks Financial Inc. Research Manager Japhet Louis O. Tantiangco said in a Viber message.

“Philippine shares succumbed to profit taking as investors digested hotter-than-expected June inflation data (in the US),” Regina Capital Development Corp. Head of Sales Luis A. Limlingan said in a Viber message.

US consumer prices increased by the most in five months in June amid higher costs for some goods, suggesting tariffs were starting to have an impact on inflation and potentially keeping the Federal Reserve on the sidelines until September, Reuters reported.

The consumer price index (CPI) increased 0.3% last month after edging up 0.1% in May, the Labor Department’s Bureau of Labor Statistics said on Tuesday. That gain was the largest since January, and also reflected higher rental costs.

In the 12 months through June, the CPI advanced 2.7% after rising 2.4% in May. Economists polled by Reuters had forecast the CPI would climb 0.3% and rise 2.6% on a year-over-year basis.

Economists generally expect the tariff-induced rise in inflation to become more evident in the July and August CPI reports, arguing that businesses were still selling merchandise accumulated before President Donald J. Trump announced sweeping import duties in April. Mr. Trump last week announced higher duties would come into effect on Aug. 1 for imports from a range of countries, including Mexico, Japan, Canada and Brazil, and the European Union.

All sectoral indices closed lower on Wednesday. Mining and oil sank by 2.64% or 255.59 points to 9,396.37; holding firms plunged by 2.5% or 141.35 points to 5,494.93; property decreased by 2.28% or 55.61 points to 2,378.79; financials went down by 1.79% or 40.21 points to 2,195.62; services fell by 1.69% or 37.06 points to 2,149.75; and industrials declined by 1.52% or 141.03 points to 9,093.46.

Value turnover surged to PHP 20.78 billion on Wednesday with 3.43 billion shares traded from the PHP 5.9 billion with 1.65 billion shares exchanged on Tuesday.

Decliners bested advancers, 122 versus 67, while 59 names were unchanged.

Net foreign selling increased to PHP 3.47 billion on Wednesday from PHP 322.36 million on Tuesday. — Revin Mikhael D. Ochave with Reuters

Indonesia-US trade deal poses challenges for Philippines

Philippine exports to the US, especially garments and textiles, will face stiffer competition after Indonesia obtained a 19% tariff rate, according to an industry group.

Foreign Buyers Association of the Philippines President Robert M. Young called the Indonesia-US deal a “big blow.”

“This is again a big blow to the Philippines, particularly to the exports of garments, textiles, and apparel, because we are now at 20% and they are on 19%,” he told BusinessWorld by phone.

“To start with, they are much bigger in terms of exports to the US. Indonesia right now is shipping something like almost USD 5 billion worth of garments and textiles to the US, while the Philippines is still fighting for USD 1 billion,” he added.

US President Donald J. Trump said on his Truth Social platform that he finalized a deal with Indonesia on Tuesday that reduced the US tariff on Indonesian goods to 19%, much lower than the 32%. Mr. Trump assigned to Indonesia in a tariff letter last week.

Aside from opening the Indonesian market to the US, Mr. Trump said that Indonesia also committed to purchasing energy, agricultural products, and Boeing airliners from the US.

“For the first time ever, our ranchers, farmers, and fishermen will have complete and total access to the Indonesian market of over 280 million people,” Mr. Trump said.

“In addition, Indonesia will pay the US a 19% tariff on all goods they export to us, while US exports to Indonesia are to be tariff and non-tariff barrier free,” he added.

Mr. Young said the outlook for Philippine tariff negotiations is dimming as other countries’ negotiations with the US are weighted towards more geopolitical considerations.

“We really don’t know because actually in the past we have already offered everything in terms of military assistance and benefits. It was all exhausted by the Philippines, having been laid on a silver platter to the US,” he said.

“On trade, we are not at the level of the other countries to offer this kind of concession. As you know, we are a small player. It will be a difficult situation for the Philippines. I wish the team of negotiators good luck, but it seems like it will be a dim chance,” he added.

The government sent its negotiators to Washington this week to seek a lower tariff, with President Ferdinand R. Marcos, Jr. expected to arrive later this month.

Mr. Young said that he does not think the Philippines can offer a zero rate on US imports to match Indonesia.

“I don’t know if we can afford it. We are also relying on the taxes for our revenue. The other thing is, of course, this will be a Presidential action. But, in the Philippines, we have (to contend with) all kinds of legalities here and there,” he said.

“It has to go through the Congress. We really don’t know how we can manage. But we have so little to offer, so I don’t know if it will be attractive enough to the US. This is what we have been trying to say,” he added.

However, he said Secretary Frederick D. Go, the special assistant to the President for investment and economic affairs has hinted that the Philippines still “has some bullets.”

“I do not know what kind of bullets he is talking about, but that is what he said,” he added.

Aside from garment and textile exports, he said that Indonesia’s lower tariff can also impact other Philippine exports, including agricultural and mineral products.

“I’m not very familiar with the figures of agri and other minerals. But all of that can be affected because it’s a competition,” he said, noting that Indonesia already sells more because of its lower costs.

Meanwhile, he said that the garment and textile industries are still not giving up and seeking other markets to survive.

“We are not waving the white flag. We are fighting. We are looking for other markets; Russia is there,” he said.

“We are in survival mode,” he added. — Justine Irish D. Tabile, Reporter

Peso plunges to PHP 57 level on US CPI

The peso plunged back to the PHP 57-per-dollar level on Wednesday as faster-than-expected US consumer inflation data for June dampened bets of further rate cuts by the US Federal Reserve.

The local unit closed at PHP 57.085 per dollar, sinking by 35.5 centavos from its PHP 56.73 finish on Tuesday, Bankers Association of the Philippines data showed. This was a fresh three-week low for the peso as this was its lowest close since it ended at PHP 57.16 on June 24.

The peso traded weaker than Tuesday’s close the entire session as it opened lower at PHP 56.85, which was already its intraday best. Its worst showing was at PHP 57.095 against the greenback.

Dollars exchanged rose to USD 1.58 billion on Wednesday from USD 1.28 billion on Tuesday.

“The dollar-peso continued its upward trend due to higher US inflation released overnight,” a trader said in a phone interview.

Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message the hotter-than-expected US CPI data for June reduced expectations of rate cuts by the US central bank this year.

For Thursday, the trader expects the peso to move between PHP 56.80 and PHP 57.30 per dollar, while Mr. Ricafort sees it ranging from PHP 56.95 to PHP 57.15.

In the 12 months through June, the CPI advanced 2.7% after rising 2.4% in May. Economists polled by Reuters had forecast the CPI would climb 0.3% and rise 2.6% on a year-over-year basis.

Mr. Trump last week announced higher duties would come into effect on Aug. 1 for imports from a range of countries, including Mexico, Japan, Canada and Brazil, and the European Union.

The US central bank tracks personal consumption expenditures (PCE) price index data for its 2% target. The Fed is expected to leave its benchmark overnight interest rate in the 4.25%-4.5% range at a policy meeting later this month. Minutes of the central bank’s June 17-18 meeting, which were published last week, showed only “a couple” of officials said they felt rates could fall as soon as the July 29-30 meeting.

CPI inflation readings came in on the low side in February through May, leading to demands by Mr. Trump for the Fed to lower borrowing costs. Mr. Trump persisted on Tuesday, writing on his Truth Social media platform, “Consumer Prices LOW. Bring down the Fed Rate, NOW!!”

Stocks on Wall Street were mixed. The dollar rose against a basket of currencies, hitting a 15-week high versus the Japanese yen. US Treasury yields rose. — AMCS with Reuters

Cash remittances up 2.9% in May

Money sent home by overseas Filipino workers (OFWs) rose by an annual 2.9% in May, although the monthly haul was the lowest in 12 months, data from the Bangko Sentral ng Pilipinas (BSP) showed.

Cash remittances coursed through banks jumped by 2.9% to USD 2.658 billion in May from USD 2.583 billion in the same month a year ago, the central bank said on Tuesday.

It was also the lowest level of monthly remittances in 12 months or since May 2024.

May remittance growth also slowed from the 4% pace in April, when cash remittances reached USD 2.664 billion.

Money sent home by land-based workers went up by 2.8% to USD 2.12 billion in May from USD 2.06 billion in the same month a year ago.

Remittances from sea-based migrant workers jumped by an annual 3.1% to USD 536 million in May.

“The increase in cash remittances drove an increase in personal remittances as well,” the BSP said.

Personal remittances, which include inflows in kind, rose by 3% to USD 2.97 billion in May from USD 2.88 billion in the previous year.

Broken down, remittances from workers with contracts of a year or more increased by 2.8% to USD 2.29 billion, while those with contracts of less than a year jumped by 3.4% to USD 590 million.

Five-month period

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

This as remittances sent by land-based workers climbed by 3.3% to USD 10.94 billion in the January-May period, while sea-based workers’ remittances edged higher by 2% to USD 2.82 billion.

The United States was the top source of remittances in the five-month period, accounting for 40.2% of the total.

This was followed by Singapore (7.4%), Saudi Arabia (6.4%), Japan (5%), the United Kingdom (4.6%), the United Arab Emirates (4.2%), Canada (3.3%), Qatar (2.9%) Korea (2.8%) and Taiwan (2.7%).

Personal remittances increased by 3% to USD 15.34 billion at end-May from USD 14.89 billion a year prior.

“The slower global economy amid Trump’s tariffs could have slowed down OFW remittances volume recently,” Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said.

Jonathan L. Ravelas, a senior adviser at Reyes Tacandong & Co., likewise noted the increased uncertainty due to tariffs.

“The tariff move adds to geopolitical and trade uncertainty, which may deter foreign direct investment (FDI),” he said.

US President Donald J. Trump first announced the initial round of tariffs it planned to impose on its trading partners in April.

Earlier this month, Mr. Trump sent out notices with the updated tariff rates it plans to impose.

“The imposition of a 20% tariff on all Philippine exports to the US starting Aug. 1, 2025 by President Trump is expected to have significant and multifaceted effects on the Philippine economy,” Mr. Ravelas added.

The Philippines was hit with a 20% reciprocal tariff, higher than the 17% announced in April.

“For the coming months, protectionist policies by Mr. Trump, particularly stricter immigration rules could weigh on some OFW remittances, especially from the US,” Mr. Ricafort said.

Mr. Trump has vowed mass deportations, which he says are needed after high levels of illegal immigration under his predecessor, Reuters reported.

Mr. Trump’s recently passed “One Big Beautiful Bill” also imposes a 1% excise tax on remittance transfers from the United States to other countries, effective after Dec. 31, 2025. This was lower than earlier proposals of a 3.5% levy.

The tax was also initially aimed at non-US citizens but now applies to any remittance sender.

“Trump’s threats of higher tariffs and other America-first policies could also slow down global trade, investments, employment including some OFW jobs, and overall world economic growth, thereby could also indirectly slow down the growth in OFW remittances,” Mr. Ricafort added.

This year, the central bank is projecting remittances to grow by 2.8%. — Luisa Maria Jacinta C. Jocson, Senior Reporter

World Bank: Job reforms to drive Philippines growth to near 7%

Reforms to enhance job creation and quality could propel Philippine economic growth to close to 7% and transform it into a middle-class economy by 2040, the World Bank said.

“To stay on a path to upper middle-income status and to realize the national ambition of a middle-class society free of poverty by 2040, the country needs a new wave of reforms. Faster, broader, deeper,” World Bank Country Director for the Philippines, Malaysia, and Brunei Zafer Mustafaoğlu said.

In its maiden launch of the Country Growth and Jobs Report for the Philippines on Tuesday, the World Bank said that it is “feasible” for economic growth to accelerate to 6.8% by 2040, along with ramping up employment and wages.

“The implementation of the set of reforms recommended in this report is estimated to increase annual gross domestic product (GDP) growth to 6.8%, create over 5.1 million additional jobs, and boost real wages by 12.9% by 2040,” according to the report.

World Bank models show the Philippines growing by an additional 1.4 percentage points (ppts) if its recommended reforms are implemented.

Broken down, economic growth could increase by 0.78 ppt annually through reforms aimed at productivity and human capital; by 0.45 ppt through deeper capital reforms; and by 0.18 ppt by boosting labor force participation.

The report has about 45 actionable recommendations, with the reforms focused on those three main pillars.

The World Bank said reforms are needed to boost project infrastructure investment, especially in connectivity.

“In an archipelagic economy like the Philippines that has spent so much in connectivity infrastructure, keeping restrictions to inter-island transport, the form of cable path restrictions, is sort of a big distortion, a big cost,” World Bank lead economist for Brunei, Malaysia, the Philippines and Thailand Gonzalo J. Varela said.

“Lifting restrictions to inter-island shipping, domestic shipping, is something that is also going to help the economy grow, and a lot of the growth happens at local levels.”

The multilateral institution also recommended policies to lower entry barriers for businesses; open domestic shipping to lower inter-island transport costs; and strengthen service delivery by local government units.

“Ensuring that local governments have the capacity to deliver the key services that they are mandated to deliver is also going to be crucial,” Mr. Varela added.

To further mobilize private capital, there is also a need to support small and medium enterprises and multinational companies linkages and deepen capital markets.

“The Philippines has received more foreign direct investment in the last few years, and we are yet to see that small and medium enterprises are connecting to these multinationals, that they are gaining from that connection as suppliers, gaining productivity,” he said.

Faster growth

With these reforms implemented, growth can further accelerate. “What it does is it brings that baseline that we had estimated at 5.4%, closer to that Philippine Development Plan target,” Mr. Varela said.

“It means that if these reforms are implemented by 2040, the Philippine economy would be 24% larger than it would have been otherwise,” he added.

The government is targeting 5.5-6.5% GDP growth this year and 6-7% from 2026 to 2028, according to latest Development Budget Coordination Committee estimates.

Under the Philippine Development Plan, the government had placed an upper bound of 8% on economic growth targets until 2028.

“To achieve its goal of becoming a middle-class society, the Philippines needs to sustain annual growth of 6-10% for decades,” the World Bank said.

It noted that though job quality remains a concern despite an increase in the number of jobs.

“Despite impressive gains, productivity growth remains weak. Job creation has tilted heavily toward non-tradable sectors, while the tradable economy — so critical for long-term growth and innovation, is shrinking,” Mr. Mustafaoğlu said.

“Top firms are not expanding fast enough. Competition is limited and too many workers remain in low-quality, low-wage jobs.”

The latest data from the local statistics agency showed the Philippines’ unemployment rate went down to 3.9% in May from 4.1% in April, with the number of individuals in the labor force hitting an all-time high of 52.32 million.

“The middle-class society by 2040 national ambition is not a utopia. It is something that is achievable if there is a commitment, both from the public sector to double down on reforms, and from the private sector to innovate and compete,” Mr. Varela said.

Based on the World Bank’s latest income classification, the Philippines still remains a lower middle-income economy, narrowly missing the threshold to achieve upper middle-income status.

The Philippines posted a record gross national income per capita of USD 4,470, only USD 26 shy of the World Bank’s upper middle-income threshold of USD 4,496-USD 13,935.

Artificial intelligence

Meanwhile, the World Bank also flagged the impact of disruptive technologies such as artificial intelligence (AI).

“Some jobs in the Philippines are at risk of technology displacement. AI exposure and AI’s potential complementarity can affect employment. The Philippines has slightly fewer jobs comprising routine tasks than its peers,” according to the report.

“However, the Philippines is more exposed to AI’s displacement effect than other East Asia and the Pacific countries due to its higher engagement in cognitive services sectors, such as contact centers in the IT-BPO sector.”

Mr. Varela said these technologies are “fast moving” and so far, they have yet to see displacement in the implementation of AI.

“At the moment, that is not yet happening. The sector is looking at it very carefully, but neither in the Philippines nor in other countries that have a large share of the economy and productivity, we see that these are at the moment being displaced.”

“What AI will do is it will create new jobs, similar to what we saw with other technological changes that created some new jobs and displaced others.”

Mr. Varela said it will be crucial to have labor market institutions that facilitate the movement of people across sectors and activities.

“It’s also having the skills to do that. So, there’s an agenda on skilling and upskilling workers… science, technology, engineering, mathematics, are also going to be increasingly important with AI.”

Mr. Mustafaoğlu said that there is a “very good opportunity” for the Philippines to benefit from the shift to AI.

“It has a young population, and things are happening a lot in the case of Asia and the East Asia region. If we can take that opportunity to actually benefit from this new development of AI and integrate AI and technologies in a way that firms increase their capability… and the economy continues to benefit and grow.”

“That will also attract FDI (foreign direct investment), because when you have those capabilities, foreign firms will also come and invest here with new technologies,” he added. — Luisa Maria Jacinta C. Jocson

Marcos green lights record PHP 6.8T 2026 budget

Philippine President Ferdinand R. Marcos, Jr. on Tuesday approved the proposed PHP 6.793-trillion national budget for 2026 that the Executive branch will submit to Congress later this month.

The national expenditure program (NEP) reflects the government’s commitment to boosting education and driving inclusive economic growth, Palace Press Officer Clarissa A. Castro told a news briefing.

The Department of Budget and Management (DBM) said in a separate statement on Tuesday that the proposed 2026 budget is higher by 7.4% from this year’s budget of PHP 6.326 trillion.

The proposed P6.793-trillion budget is equivalent to 22% of the country’s gross domestic product (GDP). Economic managers are targeting 6-7% GDP growth for 2026 through 2028.

The 2026 NEP is expected to be submitted to Congress within 30 days after the opening of the regular session on July 28.

Budget Secretary Amenah F. Pangandaman said the details of the budget proposal are still being finalized.

Allocations for key sectors, such as education, defense, and agriculture, will increase for next year, she said in a Viber message.

“The President himself sat down with the different agencies to ensure that all our priorities are aligned towards our common goal of achieving our vision of a Bagong Pilipinas,” Ms. Pangandaman said in a separate statement.

The DBM said that it had initially received budget proposals totaling PHP 10.101 trillion but had to cut these due to “limited fiscal space and the fiscal consolidation strategy.”

The DBM said it had considered budget submissions based on several criteria: alignment with the Philippine Development Plan 2023-2028; “shovel-readiness”; absorptive capacity of agencies; and prioritization of programs that deliver the “highest value and impact.” It also took into consideration the implementation of sustainable practices and the government’s fiscal space when evaluating the proposals.

The Marcos administration is targeting to gradually cut the fiscal deficit from 5.5% of GDP in 2025 to 4.3% by 2028.

By expense class, the DBM said the largest share of next year’s proposed budget will go to maintenance and other operating expenses at PHP 2.639 trillion to support the implementation of government programs and projects.

Personnel services expenditures will increase by 16.8% to PHP 1.908 trillion next year, representing 28.1% of the proposed NEP. This covers salaries, benefits, and the creation and filling of government positions.

Only PHP 1.296 trillion will be allotted for capital outlays to fund priority infrastructure projects. Financial expenses will receive PHP 950 billion to cover government financial obligations.

Of the total budget, National Government agencies will receive PHP 4.305 trillion (63.4%) while local government units will get PHP 1.35 trillion (20%). Government-owned or -controlled corporations (GOCCs) will be allocated PHP 188.3 billion in subsidies or equity support as well as net lending assistance.

Reinielle Matt M. Erece, an economist at Oikonomia Advisory and Research, Inc., said an ample national budget can drive economic growth.

“This is as the government plays a role in empowering households through assistance and development programs as well as in developing infrastructure to support productivity,” he said via Viber.

However, Mr. Erece noted the impact of an increasing budget would depend if it increases productivity.

“If it does, we may expect debt burden to slowly go down as better economic conditions may also result in higher tax revenues if businesses and households are earning well,” he said.

“In addition, reducing red tape and improving government efficiency are ways for the government to reduce costs and needed borrowings and be able to focus more on developmental and social programs.”

Jose Enrique “Sonny” A. Africa, executive director of economic think tank IBON Foundation, said the 7.4% increase in the proposed 2026 NEP is “too small for the bold response needed in the face of the continuing domestic economic slowdown and mounting global turmoil.”

“The government has to spend more and on the right things for the stability that really matters in agriculture, Filipino industry, and social services for all those in need,” he said in a Viber chat.

“A narrow-minded avoidance of progressive taxes places the burden of fiscal consolidation on the poor and middle-class through higher consumption taxes and inadequate social services, made worse by spending skewed towards pork barrel projects, inappropriate infrastructure, and bloating debt service.” — Chloe Mari A. Hufana, Reporter

Profit taking, tariff woes drag down Philippine stocks

Philippine shares dropped on Tuesday on profit taking in the absence of new trading drivers.

The Philippine Stock Exchange index (PSEi) sank by 1% or 65.57 points to close at 6,459.47, while the broader all shares index went down 0.65% or 25.09 points to 3,807.27.

“The local market pulled back as investors took profits amid the lack of fresh leads,” Philstocks Financial Inc. Research Manager Japhet Louis O. Tantiangco said in a Viber message. “With no new positive catalysts, global trade concerns amid the United States’ planned tariffs got the best of market sentiment.”

“Philippine shares weakened as investors responded to the tariff threats from President Donald J. Trump, as many analyzed whether any measures would likely be softened through negotiations,” Regina Capital Development Corp. Head of Sales Luis A. Limlingan said in a Viber message. “Investors have also been watching other tariff developments after Mr. Trump announced new levies on the European Union (EU) and Mexico, with talks ongoing and key inflation data expected to reveal the economic impact.”

Shares climbed worldwide on Tuesday as market participants entered a key week for US earnings, inflation data and trade talks in a relatively optimistic mood, Reuters reported.

Mr. Trump signaled he was open to discussions on tariffs after his weekend threat to impose 30% duties on the European Union and Mexico from Aug. 1. Japan is reportedly trying to schedule high-level talks with the US this Friday.

MSCI’s broadest index of Asia-Pacific shares outside Japan added 0.8%, while Europe’s STOXX benchmark rose 0.2% and Nasdaq futures gained after Nvidia said it would resume sales of its H20 chips to China.

Investors are also waiting for US consumer price data for June due later on Tuesday and will monitor for any upward pressure on prices from tariffs.

Back home, all sectoral indices closed lower on Tuesday. Holding firms decreased by 1.87% or 107.78 points to 5,636.28; property went down by 1.7% or 42.32 points to 2,434.4; mining and oil retreated by 0.97% or 94.77 points to 9,651.96; services sank by 0.71% or 15.63 points to 2,186.81; financials declined by 0.2% or 4.66 points to 2,235.83; and industrials fell by 0.1% or 10 points to 9,234.49.

“Century Pacific Food, Inc. was the day’s best index performer, climbing 2.99% to PHP 37.95. SM Prime Holdings, Inc. was the worst index performer, dropping 3.37% to PHP 24.40,” Mr. Tantiangco said.

Value turnover decreased to PHP 5.9 billion on Tuesday with 1.65 billion shares exchanged from the PHP 6.5 billion with 2.3 billion shares traded on Monday.

Advancers edged out decliners, 98 versus 96, while 56 names were unchanged.

Net foreign selling reached PHP 322.36 million on Tuesday, a turnaround from the PHP 632.24 million in net buying on Monday. — Revin Mikhael D. Ochave with Reuters

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