Consumption, services, easing inflation to offset tariff threat
Even under the weight of looming US tariffs and global trade uncertainty, the Philippines is projected to remain one of the world’s fastest-growing economies in 2025, HSBC economist Aris Dacanay said on Thursday.
With GDP growth expected to average 5.4 percent, the country is poised to outperform much of its regional peers in the face of external headwinds.
Dacanay said HSBC’s baseline forecast assumes the proposed 17 percent US tariff on imports from developing economies, including the Philippines, will remain in place.
Yet even without a tariff reprieve, he said, “growth will hold steady,” driven by resilient consumption, investment inflows, and expanding services exports.
For the second quarter of 2025, HSBC expects the Philippine economy to post 5.6 percent GDP growth, slightly faster than the 5.4 percent recorded in the first quarter. That Q1 performance was down from 5.9 percent in the same period last year, but remains solid amid tighter global conditions.
If tariffs are reduced — say, from 17 to 10 percent — HSBC would still expect growth.
“If tariffs are lowered, growth should be stronger, Dacanay said.
Among Asean economies, Dacanay said Vietnam is projected to grow 5.2 percent in 2025, followed by Indonesia at 4.5 percent, and Malaysia at 4.2 percent. Singapore and Thailand are each expected to grow by just 1.7 percent, highlighting the Philippines’ relative strength.
Engines for growth
Dacanay pointed to improving domestic consumption and investment as key engines for growth, helped by lower debt servicing costs following recent rate cuts. He noted that BPO activity and tourism have also been gaining traction.
“Because of the current interest rate environment, borrowing is cheaper, which supports household spending,” he said. “Services exports are holding up, while goods exports are temporarily rising due to front-loading by global buyers anticipating higher tariffs later this year.”
Uncertainty to persist
The HSBC economist warned, however, that uncertainty over global trade policy will persist at least until the end of the current 90-day negotiation pause on US tariff action next month.
“This kind of uncertainty is toxic to investment,” Dacanay said. “It can spook both foreign and local investors into holding back. For the Philippines, FDI funds about 10 percent of total investment, so any hesitation on that front can weigh heavily on overall growth.”
Another 25 bps cut
Despite the peso’s weakness and rising oil prices linked to the Middle East tensions, the Bangko Sentral ng Pilipinas (BSP) is likely to proceed with another 25 basis-point rate cut in October, lowering the policy rate to 5 percent, Dacanay said.
The BSP already trimmed its benchmark rate to 5.25 percent earlier this year, signaling that inflation—not currency volatility—remains its main policy anchor.
With inflation projected to fall to 1.6 percent in 2025, below the central bank’s 2–4 percent target, Dacanay said there’s ample room for further monetary easing.
“What matters more right now is maintaining an accommodative policy stance,” he said. “The central bank recognizes that providing support for growth is essential amid a tougher global economic landscape.”
