US President Donald J. Trump's protectionist policies remain the top risk to Philippine economic prospects this year, according to the think tank Capital Economics.

"A key uncertainty over the coming year is whether and to what extent Donald Trump follows through with his threats to impose tariffs and clamp down on immigration. The Philippines is a relatively closed economy and so less vulnerable than other parts of the region to tariffs," Capital Economics senior Asia economist Gareth Leather, markets economist Shivaan Tandon, and assistant economist Joe Maher said in a March 26 report.

"However, Trump's deportation plans could affect remittances from the United States (US) to the Philippines, which are equivalent to around 3.5 percent of the country's GDP [gross domestic product]," Capital Economics warned.

Also, "exports are likely to remain under pressure given the relatively poor outlook for global growth," the think tank said.

Capital Economics also sees regional currencies depreciating against the US dollar this year, which could weaken the Philippine peso to the ₱62:$1 level by end-2025.

It does not help that the Marcos Jr. administration is embarking on fiscal consolidation to narrow its yawning budget deficit, which would impact government spending.

"The boost from strong consumption will be offset by tighter fiscal policy. Debt shot up during the pandemic and the government is trying to bring it down steadily," Capital Economics noted.

The think tank said consumer spending would be boosted by easing inflation, which "is likely to remain low over the coming quarters." It forecast headline inflation to average 3.2 percent this year, the same as last year's rate.

Manageable annual price increases within the Bangko Sentral ng Pilipinas' (BSP) two- to four-percent target band would allow the central bank to "resume [its] easing cycle soon given the subdued outlook for inflation," it said.

In particular, Capital Economics has a more dovish forecast of 100 basis points (bps) in BSP interest rate cuts throughout 2025, to bring the policy rate to 4.75 percent by year-end.

This would allow GDP to grow by six percent this year, the lower end of the government's up to eight-percent goal, and faster than last year's slower-than-expected 5.6-percent expansion.

"We expect growth to remain strong. On the plus side, consumption growth should remain robust, helped by a combination of lower inflation and interest rate cuts," the think tank said.

In a March 25 blog, the Washington-based multilateral lender International Monetary Fund (IMF) said Southeast Asian economies, including the Philippines, "can gain the most by packaging ambitious reforms" in the areas of business and external regulation, governance, and human development.

IMF Asia-Pacific Department economist Anne-Charlotte Paret Onorato said overhauling these sectors would jack up regional output by three percent in four years' time.

"Combining deliberate, ambitious structural overhauls can help the region's largest economies achieve higher potential economic growth and sustainably attain high income levels. Wide-ranging reforms can build resilience to shocks in the face of uncertainties and help the private sector drive growth," the IMF blog read.

"Indonesia, Malaysia, the Philippines, Thailand, and Vietnam—the five largest emerging markets out of 10 economies in the Association of Southeast Asian Nations, or ASEAN—could increase long-term real economic output, on average, by 1.5 percent to two percent after two years and up to three percent after four years following comprehensive and simultaneous economy-wide reform packages," it added, citing the IMF's study of output gains derived from structural reforms in advanced economies and emerging markets.

Citing its 2024 selected issues papers on Indonesia and the Philippines, the IMF said that "packaging reforms yields better output outcomes than a sequenced, gradual approach."

In contrast, "the benefits from enacting a single major economic reform would be more modest" in Southeast Asian countries, the IMF said.