Philippines

Stable and robust growth amid a cloudy export outlook

Economic growth should stay virtually unchanged in 2025 and therefore remain lower than in the pre-Covid years (6.5% on average between 2015 and 2019), against a backdrop of weakness in the global economy. Private consumption (75% of GDP) should benefit from much lower inflation and interest rates, offsetting fiscal consolidation. Monetary easing by the Bangko Sentral ng Pilipinas (BSP) should also encourage private investment, while public investment should benefit from infrastructure projects. In addition, several policies aimed at reducing barriers to foreign investment, as well as the removal of the Philippines from the FATF grey list in February 2025, could attract foreign capital. On the external front, the outlook is gloomy given increasing trade and geopolitical tensions. But the impact should be mitigated by the relatively small share of exports in the economy (around 12% of GDP).

Given its relatively small contribution to the US trade deficit, the Philippines posts the smallest increase in reciprocal tariffs (17%) in ASEAN after Singapore. Thanks to tariff differentials, exporters could benefit from increased competitiveness in the US market (16% of total exports). But on the other hand, inflated import prices in the US market due to tariffs could lead to a drop in the Philippines' export volumes. Moreover, the structure of exports differs from other ASEAN countries, with the Philippines being much more focused on service exports, in particular business process outsourcing (BPO). Consequently, it will not be easy to replace its regional counterparts in the US market without substantial investment. In addition to the negative impact on exports, the weakness of the Chinese and US economies, exacerbated by the trade war, could slow remittance flows.

Inflation (headline and core) has fallen steadily since peaking at 8% in 2022 following the onset of tensions between Ukraine and Russia, to stand at 1.2% in May 2025. Inflationary pressures have largely dissipated, although rising geopolitical tensions, notably between Iran and Israel, could push up the price of imported energy. As a result, the BSP's monetary policy has eased, with several rate cuts since August 2024. Given the low inflationary pressures and the need to support domestic demand, the BSP is likely to continue its monetary easing.

No major risks related to twin deficits

The Philippines is implementing a gradual fiscal consolidation strategy. The deficit as a share of GDP has declined since its peak in 2021. Continued robust economic growth and efforts to raise greater tax and non-tax collection would boost public revenues in 2025. The government expects to increase its revenue thanks to the digitalisation of the tax system and changes to tax policy, although specific reforms have not been described in the budget breakdown. Spending will be allocated mainly to education, infrastructure, defence and social services. Consequently, the public debt-to-GDP ratio is expected to decrease slightly in 2025. The debt risk profile is limited by the relatively low share of foreign currency-dominated funding (around 32%).

Regarding external accounts, the current account deficit should slightly narrow. But the deficit of the balance of goods should remain substantial as exports are unlikely to rebound markedly, as the country relies on imported consumer and capital goods. Meanwhile, the services surplus is forecast to increase thanks to robust BPO activities and a gradual recovery in tourism. Robust remittances should also help cushion the current account deficit. Foreign investment, mostly in the form of FDI from Japan, the US and Singapore, might not entirely cover the current deficit and thereby put pressure on international reserves. Nevertheless, these remain at comfortable levels, representing eight months of imports in April 2025.

Fractured coalition

The Philippine political landscape is in turmoil due to friction in the coalition between President Ferdinand ‘Bongbong’ Marcos Junior (son of the country's namesake dictator who ruled the country for 20 years from 1965) and the camp of Vice-President Sara Duterte (daughter of former President Rodrigo Duterte). The House of Representatives voted for the impeachment of Sara Duterte in February 2025 for allegedly plotting the attempted assassination of Marcos Jr., corruption, and misuse of funds. In June 2025, no trial in the Senate (the upper house of Congress) has taken place and for the moment Sara Duterte is still Vice President. Rodrigo Duterte's arrest by the ICC on suspicion of crimes against humanity during his bloody “war on drugs” has reignited tensions between the two camps. Marcos had previously rejected the ICC's jurisdiction but did not publicly obstruct the arrest, leading some Duterte supporters to speculate that Marcos was tacitly allowing the ICC to intervene. Against this backdrop, the May 2025 mid-term elections (in both lower and upper houses of Congress) were a proxy war between the Marcos and Duterte camps.

Although Marcos' allies hold a majority in the House of Representatives, neither camp currently holds a clear majority in the Senate, which works in Sara Duterte's favour regarding her possible impeachment. Moreover, despite Rodrigo Duterte's detention by the ICC, he was elected mayor of Davao City in the local elections and his son Sebastian is the vice-mayor. Overall, Marcos and his allies retain stronger institutional and executive power, but the Duterte camp's victories in the Senate and local elections keep them competitive. Another reason for the friction could be Marcos’ foreign policy shift away from China towards countries such as Japan and the US. While Rodrigo Duterte managed to improve the country’s diplomatic ties with Beijing, tensions between the two countries have exacerbated since Marcos’ election amid intensified US-China rivalry.

Last updated: June 2025