Tariff issue clouds Philippines growth outlook

Highest of target now less likely

MANILA, Philippines — The government is sticking to its six to eight percent growth target for the year for now, but the upper end may no longer be realistic given the uncertainty brought about by the United States’ tariffs on trade partners, according to the National Economic and Development Authority (NEDA).

“We are keeping for now the six to eight percent growth (target). We’re still quite confident that we may hit at least the low-end part,” NEDA Secretary Arsenio Balisacan said in a press briefing yesterday, noting that many international institutions are forecasting growth to be close to that level.

When asked if the government is looking to narrow down the growth target, he said there is a need to wait for more information including the first quarter gross domestic product (GDP) performance to be released next month.

He also said that the upper end of the growth target may no longer be possible.

“I think that given the uncertainty, which is not something that’s likely to disappear soon…the eight percent (growth) may not be a realistic assumption,” he said.

Growth of six to seven percent, however, is still possible, he said, even if challenges are expected in the second quarter.

Despite the elections happening in the second quarter, he said its impact may not be strong enough to offset the effects of the tariff uncertainty.

Based on the NEDA’s simulations, he said the US’ imposition of a uniform 10 percent tariff on imports from the Philippines and other trade partners and the 125 percent tariff on Chinese goods would lead to a 1.5 percent increase in the Philippines’ overall exports.

He said the impact on the GDP would be minimal as the exports sector accounts for a very small proportion of the economy.

Under a scenario where the Philippines’ goods to the US would be imposed a 17 percent tariff, he said the increase in Philippine exports would be less than 0.5 percent.

The US initially imposed a 17 percent tariff on goods coming from the Philippines as part of its reciprocal tariffs plan unveiled on April 2.

NEDA Secretary Arsenio Balisacan

Last week, however, it announced a 90-day pause and substantially lowered the reciprocal tariffs to 10 percent for most countries, including the Philippines.

The 90-day pause was announced after many countries expressed intent to negotiate with the US on the tariffs.

For the first quarter, Balisacan said a six percent growth is not as far-fetched.

The Philippine economy expanded by 5.9 percent in the first quarter last year.

Balisacan said growth in the first quarter was likely supported by domestic consumption.

“You won’t expect that exports will be a [growth] driver in the first quarter or even for the year, because of these disruptions in the trade,” he said.

While the Philippines’ economic growth relies more on consumption than exports, he said the country needs to pay more attention to exports and investments to diversify its pillars of growth.

“Investment and export are weak points at this time because of this uncertainty in the global economy,” he said.

He said the country needs to intensify its efforts in looking for other markets for its exports and strengthen partnerships by forging trade agreements with other countries.

In addition, the country needs to address major investment constraints in the country.

For his part, former finance secretary Margarito Teves said the potential economic opportunities for the Philippines from the US’ imposition of tariffs would depend on the country’s ability to considerably reduce trade barriers and cost of doing business in the country.

Apart from negotiating with the US to lower the tariffs and pursuing alternative export markets, he recommends supporting stronger regional integration with the Association of Southeast Asian Nations to accelerate the reduction of trade and regulatory barriers.

The Philippines, he said, should also make the business environment very competitive with its peers in Asia to realize the potential benefits arising from possible investment relocation by implementing key investment reforms, addressing ease of doing business, reducing electricity and logistics costs, as well as ramping up reskilling and upskilling programs.

“Because of their (US) massive influence on global trade, supply chain and investment, any further escalation would have a ripple effect on all economies, including the Philippines. This development needs to be closely monitored,” he said.