Amid a looming global trade war, the World Bank slashed its 2025 and 2026 growth forecasts for the Philippines to levels that would bring two-year economic expansion to their slowest pace post-pandemic.

According to the Washington-based multilateral lender’s East Asia and Pacific Economic Update report for April 2025, published on April 24, the Philippines' gross domestic product (GDP) is seen expanding by only 5.3 percent this year, before inching up to 5.4 percent next year.

If the World Bank's latest projections for the Philippines materialize, they would be the lowest growth rates since 2021, when the economy recovered after gradually reopening from the most stringent Covid-19 lockdowns that dragged the country to its worst post-war recession in 2020.

These would also fall below the government's more ambitious six- to eight-percent annual economic growth target for the next two years. National Socioeconomic Planner Arsenio Balisacan had previously conceded that the upper end of the goal “may be unrealistic” even as this target remains, considering global trade dynamics.

Back in October 2024, the World Bank was more optimistic, projecting Philippine GDP growth at six percent for 2025 and 6.1 percent for 2026.

As global trade tensions intensified after United States (US) President Donald Trump announced sweeping tariffs imposed on America's trading partners during his so-called "Liberation Day" last April 2, the World Bank had postponed the launch of its latest East Asia and Pacific Economic Update, which was originally scheduled for release on April 9.

Across the region, “rising global uncertainty, especially regarding trade policy, is affecting business and consumer confidence, reducing investment and consumption,” the report said.

Given these, the World Bank has forecast the region, excluding China, to grow by 4.2 percent. It said this would be due to “increased global economic policy uncertainty, increased trade restrictions and weaker external demand.”

“New trade restrictions, including tariffs, are expected to hurt exports. And slower global growth is likely to further reduce external demand,” it added.

Meanwhile, the report said that the Philippines’ “private consumption is expected to contribute to growth due to easing inflation and monetary policy.” In 2024, inflation averaged 3.2 percent, falling within the upper half of the government’s target band of two to four percent.

In the first quarter of 2025, average inflation rate stood at 2.2 percent, comfortably within the targeted range of manageable annual price increases conducive to economic growth.

On April 10, the Bangko Sentral ng Pilipinas (BSP) reduced the key interest rate by 25 basis points (bps) to 5.5 percent, which was widely anticipated by the market.

BSP Governor Eli M. Remolona Jr. earlier cited lingering global headwinds, including US tariffs, as a drag to Philippine growth. Thus, the resumption of rate cuts is aimed at bolstering local economic expansion.

Room for cuts

Overall, Krishna Srinivasan, director at the International Monetary Fund’s (IMF) Asia and Pacific department, said Asian economies have room to further ease monetary policy.

“If you look at a policy mix, I would say that countries in Asia are better placed to engage more in monetary easing than fiscal easing,” Srinivasan said during the IMF’s regional press briefing on Thursday night, April 24 (Philippine time).

While he believes the region has space, “how central banks use that space will be data dependent.”

“They have to think in terms of uncertainty and volatility. But given where they are with inflation, many countries in the region—including the Philippines—have monetary policy space. I would say less so on the fiscal side,” the IMF regional director said.

Srinivasan noted that the IMF lowered its growth forecast for the Philippines to 5.5 percent this year and 5.8 percent next year, reflecting a total downgrade of around 1.1 percentage points (ppts).

This adjustment takes into account the impact of “significant external shocks.” The country’s “exposure to the US is not [very] significant, but it’s not that low either—it is about 17 percent. So, there is still significant external exposure,” Srinivasan stressed.

“But the fact that we have revised it by 1.1 ppts cumulatively over two years reflects largely the trade impact and the heightened uncertainty,” he added.

In response to emailed questions from Manila Bulletin, an IMF spokesperson similarly noted that "the direct impact of US trade policy measures on the Philippines is expected to be limited due to its relatively low direct exposure to the US through goods trade."

"However, the looming trade tensions could weigh on economic activities in the Philippines, through indirect channels, including lower growth in the Philippines’ main trading partners, impact of higher global economic uncertainty and financial tightening," the IMF spokesperson said.