A five percent economic expansion could be more difficult to achieve this year as Nomura, Japan’s largest investment bank and brokerage group, believes the United States’ (US) higher-than-expected tariffs on Philippine exports could massively weigh on growth.

“We think the tariff rates set by the US for Indonesia and the Philippines at 19 percent are fairly high and therefore pose downside risks to their respective growth outlooks,” Nomura Asia economists Euben Paracuelles, Nabila Amani, Yiru Chen, and Charnon Boonnuch said in a Global Markets Research report published last week.

Prior to the conclusion of the tariff negotiations between US President Donald Trump and President Marcos Ferdinand Jr., Nomura was estimating the final deal could settle at 10 percent, far below the average rate it projected for the region at 15.5 percent.

Paracuelles, Aman, Chen, and Boonnuch noted that the agreed actual rates turned out to be higher for the Association of Southeast Asian Nations (ASEAN)-6 countries, “especially for the Philippines.” ASEAN-6 refers to the original six member countries of the ASEAN, which are the Philippines, Brunei, Indonesia, Malaysia, Singapore, and Thailand

“If implemented and these tariff rates are sustained, these will likely further weigh on growth in both countries [the Philippines and Indonesia] relative to our current baseline forecasts,” the economists warned.

Initially, Nomura Asia economists had forecast the Philippine economy to expand by 5.3 percent in 2025 and 5.6 percent in 2026. This was based on the expectation that the US tariffs on Philippine-made goods would settle at 10 percent.

Such a projection was based on the assumption that “the Philippines is a strong ally of the US and is not a third country for transshipments

However, with the 19-percent tariff, the local economy could weaken by around 0.4 percentage points (pp), which is a “substantial” reduction from the economists’ earlier forecast.

Trimming its previous 5.3-percent growth projection by 0.4 pp would bring it down to 4.9 percent—the weakest annual expansion, excluding the 9.5-percent contraction during the pandemic, since the 3.9 percent growth recorded in 2011.

While the growth impact is “significant” for both the Philippines and Indonesia, results showed that the growth impact of the latest tariff deals is “much higher in the Philippines than in Indonesia.”

To recall, US tariffs on Indonesian exports have been reduced to 19 percent from 32 percent, which was imposed three months ago in April. The Philippines only managed to inch down slightly from 20 percent.

During the first quarter of the year, the country’s GDP expanded by 5.4 percent, slightly faster than the 5.3 percent growth in the previous quarter, but slower than the 5.7 percent growth in the same period last year.

It can also be recalled that the country missed its economic target for the second year in a row in 2024 at 5.7 percent. In 2023 it stood at 5.5 percent, falling short of the growth target of six percent to seven percent.