Global economic uncertainty resulting from the US’ protectionist policy could hamper inflows of foreign direct investment into the Philippines, local analysts said on Sunday.
US President Donald Trump’s tariff policy meant to protect American industries encourages more investments and jobs in their local economy rather than outside the US, analysts interviewed by Malaya Business Insight over the weekend said.
“It is crucial to proactively navigate the complexities of the evolving global trade landscape and its accompanying uncertainties to ensure the country does not fall behind its neighbors once again,” Astro del Castillo, managing director of First Grade Finance, Inc. said.
The Bangko Sentral ng Pilipinas (BSP) released a report late Thursday stating that FDI net inflows in January this year amounted to $731 million, down 20 percent from the $914 million net inflows in January 2024.
The BSP report showed the downturn in FDI net inflows stemmed from the 37.7 percent fall in non-residents’ net investments in debt instruments to $519 million from $833 million in January last year.
The BSP said equity capital placements in January 2025 originated primarily from the United States, Japan, Singapore and Malaysia. It added that these investments were channeled mostly to the manufacturing, financial insurance and real estate industries.
Substantial drop
Del Castillo said the drop is substantial and presents a significant challenge for the government.
“The government must take decisive action. Neighboring countries are successfully attracting more investments, highlighting the need for the Philippines to strengthen its strategies,” del Castillo said in a Viber message on Sunday.
He said this strategy includes focusing on domestic and regional advantages, diversifying investment sources, and implementing key reforms to enhance its appeal as an investment destination.
Prevailing sentiment
Matt Erece, an economist at Oikonomia Advisory & Research Inc., said that with the ongoing trade uncertainty, investors are unwilling to invest in capital and would instead hold safer assets, such as gold or treasuries to maintain liquidity in this risky economic environment.
“We expect this sentiment to continue in the following months, especially as trade conflicts escalate between the US and China, which are also one of the Philippines’ largest trading partners, Erece said.
One way to offset this negative market sentiment is to boost the domestic economy, which may prove resilient amid international trade tensions, he said.
“Establishing trade agreements with other countries, especially the US, can help the country maintain a relatively stable outlook on the trade sector,” he added.
Still decent
Michael Ricafort, RCBC chief economist, maintains a positive view despite the decline, emphasizing that net inflows of nearly $1 billion are “still considered decent.”
Such level, he said, still stood “among pre-pandemic highs, which could create more jobs and other business opportunities, and also, still contribute to further economic growth and development,” Ricafort said.
Ricafort said the decline in FDI may be partly attributed to delay in releasing the CREATE MORE implementing rules and regulations (IRR), which were released on Feb 17, 2025.
“For the coming months, the release of the CREATE MORE IRR could make foreign investors more decisive in locating in the country amid enhanced incentives for foreign investors,” Ricafort said.
CREATE MORE is a government measure that envisions to transform the Philippines into an attractive business destination by making its tax incentives regime more globally competitive, investment-friendly, predictable and accountable.
Ricafort said the series of typhoons that caused business disruptions in some areas of the country during the last quarter of 2024 and the local political noise toward the end of 2024 contributed to the decline.
More rate cuts
“Some foreign investors could have also waited for the (US) Fed and the BSP rates to go down further before becoming more aggressive to finance more FDIs,” Ricafort said.
The policy-setting Monetary Board resumed its easing cycle on Thursday and decided to lower the Bangko Sentral ng Pilipinas (BSP) Target Reverse Repurchase Rate by 25 basis points (bps) to 5.50 percent.
The board reached the decision after factoring in the 90-day suspension of most of the higher import tariffs issued by US President Donald Trump on America’s trading partners, the BSP said.
Ricafort said a benign inflation outlook and softer GDP data at 5.3 percent year-on-year in the fourth quarter 2024 would further support local policy rate cuts in the coming months.
“Further rate cuts by the Fed and the BSP in the coming months would make borrowing costs cheaper from the point of view of foreign investors, thereby helping increase demand for loans to finance more FDIs into the country,” Ricafort said.
Aris Dacanay, HSBC economist for Asean, said that if foreign investors demand Philippine assets to insulate themselves from global financial market volatility, the peso might exhibit resilience, which, in turn, could give the BSP room to cut policy rates faster or more than the Fed.
Dacanay said they continue to expect the BSP to cut its policy rate by 25 bps in August and by another 25bps in December, bringing it down to 5.00 percent by year-end.
“The BSP is likely to employ a very cautious approach when easing, given the large degree of uncertainty in global trade policy,” Dacanay said.
