The Philippine economy is seen poised for a modest second-quarter rebound, with private analysts focusing more on easing inflation, improved domestic demand and reduced global trade concerns than on the late-quarter eruption of the Middle East conflict.
S&P Global Ratings on Tuesday revised upward its full-year 2025 GDP growth forecast for the Philippines to 5.9 percent from 5.7 percent in May.
Separately, the University of Asia and the Pacific (UA&P), in its latest Market Call report, projected 5.6 percent second-quarter growth, faster than the 5.4 percent expansion recorded in the first three months of the year.
Vincent Conti, senior lead economist at S&P Global Ratings, attributed the upward revision to the sharp reduction of bilateral tariffs between the US and China, following Washington’s recent pause on country-specific reciprocal tariffs.
“This somewhat reduced the uncertainty around global trade and growth,” Conti said, noting that the Philippines, while still facing external headwinds, benefits from relatively resilient domestic demand.
S&P expects resilient demand
The same S&P report — Economic Outlook Asia-Pacific: Resilience May Vary — stressed that export-heavy economies in the region remain vulnerable to renewed US-China friction. However, it identified the Philippines, alongside India, as being better shielded due to lower dependence on goods exports.
“We expect domestic demand to remain relatively resilient. The extent to which this limits a broader slowdown depends on each economy’s exposure to exports,” Louis Kuijs, Asia-Pacific chief economist at S&P Global, said.
Similar view from UA&P
The UA&P report reinforced that view, noting a “slightly more positive” domestic outlook, anchored on below-target inflation, faster infrastructure spending, and stronger job creation.
“Q2 growth is expected to vamp up to 5.6 percent year-on-year,” the report said. “The external sector shows signs of modest improvement and should not pull down domestic demand expansion.”
Headline inflation eased to 1.3 percent in May, a fresh six-year low, bringing the year-to-date average to 1.9 percent — well below the Bangko Sentral ng Pilipinas’ (BSP) 2–4 percent target range.
S&P now sees full-year inflation averaging 2.3 percent, saying the easing of inflationary pressures and external growth risks open the door for further monetary policy easing. Conti added that “the BSP has space to cut rates,” particularly as global uncertainty persists.
The BSP recently reduced its benchmark rate by 25 basis points to 5.25 percent, citing a downgrade in its 2025 inflation forecast from 2.4 percent to 1.6 percent. S&P expects the BSP’s policy rate to fall to 5 percent by end-2025.
The fiscal side
On the fiscal side, UA&P highlighted the acceleration in infrastructure disbursements, with the Department of Budget and Management reporting P261.8 billion spent in Q1 2025 — a 20.8 percent increase year-on-year.
Overall public expenditures as of end-April grew 13.57 percent to P1.932 trillion, aided by election-related spending in the run-up to the May 12 midterm elections.
Despite encouraging second-quarter indicators, both S&P and UA&P acknowledged lingering downside risks, including volatile energy markets and currency depreciation pressures linked to global geopolitical instability.
“We expect the peso to depreciate in Q3 as the Israel-Iran conflict rages on and the BSP rate cut widens the gap with the US Fed,” UA&P said.
However, geopolitical risks may ease in the near term following the announced ceasefire between Israel and Iran. Both S&P and local analysts have noted that sustained calm in the region could temper volatility in energy markets and reduce downward pressure on the peso.
While challenges remain, analysts agree the Philippine economy is showing signs of regaining its footing — driven by domestic resilience, fiscal momentum, and a favorable inflation environment.
