The Philippines is bracing for a prolonged period of trade deficits as global economic headwinds batter its export sector, according to a recent analysis by BMI, a unit of the Fitch Group. With the country’s current account—a comprehensive measure of trade that includes investments—projected to remain in deficit for the next five years, the economic outlook raises concerns about currency pressures and long-term financial stability.
Trade Imbalance to Persist
The BMI report highlights a stark reality for the Philippines: the nation is expected to continue importing more than it exports, a trend that could keep the Philippine peso under strain. The current account deficit is forecasted to average 2.8 percent of gross domestic product (GDP) over the coming years, a significant widening from the 0.4 percent average recorded between 2015 and 2019. This growing shortfall reflects not only domestic consumption patterns but also the mounting challenges faced by the country’s key trading partners.
The current account tracks the flow of dollars from trade in goods and services, including sectors like business process outsourcing (BPO), as well as investments abroad and remittances from overseas Filipino workers. A deficit in this measure indicates that the country is a “user of funds” relying on foreign borrowing to bridge the gap between national savings and investment needs. This dependency on external financing could exacerbate economic vulnerabilities if global conditions worsen. 
Recent data from the Bangko Sentral ng Pilipinas, the country’s central bank, underscores the immediacy of the challenge. In the first quarter of the year, the current account balance swung to a deficit of $4.2 billion, equivalent to 3.7 percent of GDP. This figure is alarmingly close to the central bank’s full-year projection of 3.9 percent for 2025, suggesting that the deficit could deepen further as the year progresses.
Global Headwinds Hit Key Markets
The Philippines’ trade outlook is heavily influenced by the economic performance of its major export destinations, particularly the United States and mainland China. The United States, which accounts for 16 percent of the country’s total shipments, is expected to see growth slow to 1.7 percent in 2025 from 2.8 percent this year. High interest rates and political uncertainty in the U.S. are cited as key factors dampening demand for Filipino exports.
Meanwhile, mainland China, another critical market, is grappling with its own economic challenges. A prolonged property slump has eroded household wealth and consumer spending, with growth projected to ease from 5 percent in 2024 to 4.8 percent in 2025 and further to 4.2 percent in 2026. These slowdowns in two of the world’s largest economies spell trouble for the Philippines, which relies heavily on external demand to drive its export sector.
Beyond these economic giants, broader global trade dynamics are adding to the strain. The BMI report points to a rise in U.S. tariffs as a significant risk, noting that such protectionist measures could weigh more heavily on the global economy in the coming years. For a trade-dependent nation like the Philippines, these developments threaten to further erode export competitiveness and exacerbate the current account deficit.
Services Sector Offers Little Relief
While the Philippines has long relied on its robust services sector to offset weaknesses in goods exports, even this pillar of the economy is showing signs of strain. The country is a major player in the global BPO industry, holding a 15 percent share of the market and contributing 7.5 percent to domestic GDP. However, BMI cautions that a weakening global services environment could limit the sector’s ability to cushion the trade deficit.
The BPO industry, which includes call centers and other outsourced business functions, is highly sensitive to economic conditions in client countries, many of which are facing their own downturns. A slowdown in demand for these services could have ripple effects across the Philippine economy, reducing foreign exchange earnings and further pressuring the current account balance.
Additionally, remittances from overseas Filipino workers—a critical source of foreign currency—are expected to grow at a slower pace in 2025 compared to 2024. This softening trend, combined with challenges in the BPO sector, suggests that the services side of the economy may struggle to provide the relief needed to offset deficits in goods trade.
Implications for Economic Policy
The persistent current account deficit poses significant challenges for Philippine policymakers, who must balance the need for economic stimulus with the risks of currency depreciation and rising borrowing costs. A weaker peso, driven by sustained trade imbalances, could fuel inflation by increasing the cost of imported goods, a particularly acute concern given the country’s reliance on foreign products for everything from food to fuel.
Addressing the trade deficit will require a multi-pronged approach. Boosting export competitiveness through investments in infrastructure, technology, and workforce skills could help the Philippines capture a larger share of global markets. At the same time, efforts to diversify export destinations beyond the U.S. and China may reduce vulnerability to slowdowns in these economies. Regional trade agreements, such as the Regional Comprehensive Economic Partnership (RCEP), offer opportunities to expand market access, but their benefits will take time to materialize.
On the domestic front, reducing import dependency through policies that encourage local production and consumption could help narrow the trade gap. However, such measures must be carefully designed to avoid stifling economic growth or triggering retaliatory trade barriers from other countries. The government will also need to monitor the impact of global tariff trends, particularly U.S. policies, which could further complicate export strategies.
Long-Term Risks and Opportunities
Looking ahead, the Philippines faces a delicate balancing act. While the immediate focus will likely be on stabilizing the current account and supporting key sectors like BPO, longer-term structural reforms are essential to address the root causes of the trade imbalance. Investments in education and innovation could position the country as a hub for higher-value exports, moving beyond low-cost manufacturing and services to compete in technology-driven industries.
At the same time, the global economic environment remains a wildcard. A deeper slowdown in the U.S. or China, or an escalation of trade tensions through higher tariffs, could derail even the most well-crafted policies. For now, the BMI’s forecast serves as a sobering reminder of the challenges ahead, with the current account deficit casting a shadow over the Philippines’ economic prospects.
Yet, amidst these challenges, there are glimmers of opportunity. The country’s young, dynamic workforce and strategic location in Southeast Asia position it as a potential beneficiary of shifting global supply chains, particularly as companies seek alternatives to China amid geopolitical tensions. Capturing these opportunities, however, will require decisive action and a clear vision for economic transformation.
As the Philippines navigates this turbulent period, the trajectory of its trade balance will be a key indicator of its resilience. Whether policymakers can turn the tide on deficits and chart a path toward sustainable growth remains an open question, one that will shape the nation’s economic future for years to come.
