Manila faces a bumpy road ahead as economic growth in the Philippines is projected to decelerate in the second half of 2025, driven by worsening global economic conditions and the full impact of US tariffs on Philippine exports. According to a recent report by BMI, a research and analysis unit of Fitch Solutions, the country’s gross domestic product (GDP) growth forecast remains at 5.4 percent for the year, a figure that falls short of the government’s ambitious target range of 5.5 to 6.5 percent.
This outlook comes as the United States, a key trading partner, has imposed a 19-percent tariff on Philippine exports since August 7, 2025. While this rate is slightly lower than the 20 percent initially announced in July, it remains higher than the 17 percent levy proposed in April. The cascading effects of these trade barriers, combined with broader global uncertainties, are expected to weigh heavily on the Philippine economy in the near term.
Impact of US Tariffs and Global Trade Tensions
The revised US tariff rate is anticipated to reduce Philippine economic output by 0.4 percentage points over the medium term, a notable improvement from the 1.4 percentage-point decline BMI estimated earlier in the year. However, this reduction still poses a significant challenge. BMI warns that by the second half of 2025, the full force of these tariffs will be felt, with knock-on effects rippling through global trade networks. As the US is one of the largest markets for Philippine goods, ranging from electronics to agricultural products, the tariffs could disrupt export-driven growth, a critical pillar of the nation’s economy. 
Beyond the immediate impact of tariffs, erratic US trade policies are expected to dampen global investor sentiment. BMI notes that foreign direct investment (FDI) inflows, which are vital for infrastructure development and job creation in the Philippines, are unlikely to see a meaningful recovery in the near future. This cautious outlook reflects broader concerns about trade tensions and geopolitical instability, which have made investors wary of emerging markets like the Philippines.
The timing of these challenges is particularly concerning. As of the first half of 2025, the Philippine economy recorded an average growth rate of 5.4 percent, aligning with BMI’s full-year forecast but falling short of the government’s expectations. With global conditions set to deteriorate further, sustaining even this level of growth could prove difficult. The government, under pressure to meet its targets, may need to explore alternative strategies to bolster economic resilience.
Domestic Weakness and Monetary Policy Shifts
Domestically, the Philippine economy faces additional headwinds. Household consumption, a key driver of growth in a country where private spending accounts for a significant portion of GDP, is showing signs of weakness. BMI highlights that import volumes—a reliable indicator of private spending—continue to contract sharply. Recent consumer surveys also point to declining confidence as trade tensions escalate, further eroding the willingness of Filipino households to spend.
In an effort to stimulate economic activity, the Monetary Board of the Bangko Sentral ng Pilipinas (BSP) reduced the key interest rate by 25 basis points to 5.25 percent at its June 19, 2025, meeting. While this move aims to lower borrowing costs and encourage investment and consumption, BMI cautions that the impact may be limited given the broader global challenges. Interest rates, although eased from their peak, are unlikely to offset the combined effects of trade barriers and weakening investor confidence.
The interplay between domestic and international factors creates a complex environment for policymakers. On one hand, lower interest rates could provide some relief to businesses and consumers grappling with rising costs. On the other, external pressures such as tariffs and reduced export demand may undermine these efforts, leaving the economy vulnerable to further slowdowns.
Long-Term Outlook and Government Targets
Looking beyond 2025, BMI offers a more optimistic view for the Philippine economy. The firm projects GDP growth to accelerate to 6.2 percent in 2026, a pace it expects to maintain through 2027. By 2028, growth is forecasted to reach 6.4 percent, aligning with the government’s annual target range of 6 to 7 percent for those years. These projections suggest that while near-term challenges are significant, the Philippines could rebound if global conditions stabilize and domestic reforms take hold.
Achieving these targets, however, will require sustained efforts to diversify export markets and strengthen domestic demand. The government has long emphasized infrastructure development through initiatives like the Build, Build, Build program, which aims to improve connectivity and attract investment. Yet, with FDI inflows constrained by global uncertainties, the pace of such projects may slow, delaying their economic benefits.
Moreover, the Philippines must navigate a delicate balance between addressing immediate economic pressures and laying the groundwork for long-term growth. Expanding trade partnerships with other regions, such as the European Union or ASEAN neighbors, could help mitigate the impact of US tariffs. At the same time, boosting domestic industries and supporting small and medium-sized enterprises (SMEs) could shore up household incomes and consumption, providing a buffer against external shocks.
Regional Context and Comparative Challenges
The Philippines is not alone in grappling with the fallout from global trade tensions. Across Southeast Asia, countries like Vietnam and Thailand are also facing export challenges as major economies impose protectionist measures. Vietnam, for instance, has seen its export growth slow due to similar tariffs and supply chain disruptions, while Thailand struggles with declining demand for its automotive and agricultural products. For the Philippines, however, the reliance on the US market amplifies the impact of these policies, making economic diversification an urgent priority.
Within this regional landscape, the Philippines faces unique challenges due to its economic structure. Unlike Vietnam, which has benefited from a rapid shift of manufacturing investments from China, or Singapore, with its robust financial services sector, the Philippines depends heavily on remittances from overseas Filipino workers (OFWs) and exports of goods like electronics. A downturn in global demand, coupled with trade barriers, could thus have a disproportionate effect on the country’s economic stability.
Analysts also point to structural issues that could hinder recovery. High levels of income inequality, limited access to quality education, and persistent underemployment remain barriers to inclusive growth. Addressing these issues will be critical for the government to ensure that economic gains, when they materialize, are shared broadly across society rather than concentrated among a small elite.
Navigating Uncertainty in 2025 and Beyond
As the Philippines braces for a challenging second half of 2025, the road ahead is fraught with uncertainty. The combination of US tariffs, weakening global demand, and domestic consumption constraints paints a sobering picture for an economy striving to meet ambitious growth targets. While monetary policy adjustments offer some relief, they are unlikely to fully counteract the external pressures bearing down on the country.
For policymakers, the focus must shift to building resilience through strategic trade partnerships and domestic reforms. Encouraging innovation in key sectors, such as technology and renewable energy, could position the Philippines as a competitive player in emerging markets. Simultaneously, social programs aimed at supporting vulnerable populations could help stabilize household spending, a critical driver of growth.
The coming months will test the Philippines’ ability to adapt to a rapidly changing global environment. With BMI’s forecast signaling both near-term struggles and long-term potential, the question remains whether the country can weather the storm and emerge stronger on the other side. As trade tensions continue to unfold, the economic fate of the Philippines hangs in a delicate balance.
