Economy seen to accelerate in Q3 amid tariff pressures, favorable weather

The Philippine economy is projected to expand by 5.8% in the third quarter of 2025, supported by resilient consumer spending, easing inflation, and a recovery in infrastructure disbursements, according to the University of Asia and the Pacific (UA&P).

In its latest Market Call report, UA&P said the growth forecast represents an acceleration from the 5.5% recorded in the second quarter and the 5.2% posted in the same period last year, and falls within the government’s full-year target of 5.5% to 6.5%.

“Despite the Trump tariffs, a milder typhoon season will help accelerate GDP expansion in Q3 to 5.8%, given a low base in 2024,” UA&P said.

The projection comes amid easing price pressures, with inflation cooling to a 0.9% rate in July, its lowest level in nearly six years, bringing the year-to-date average to 1.7%, below the Bangko Sentral ng Pilipinas’ (BSP) 2% to 4% target range.

UA&P also cited the expected rebound in infrastructure spending, which had slowed due to the 45-day public works ban ahead of the May elections. Residential construction, however, remains constrained by high interest rates despite the BSP’s 125-basis-point cumulative rate cuts since August 2024.

At the same time, UA&P noted the peso-dollar exchange rate could “move either way” depending on monetary policy moves by both the BSP and the U.S. Federal Reserve.

External Risks Remain

Despite the upbeat outlook, ANZ Research cautioned that the Philippines faces challenges from higher U.S. tariffs and a potential slowdown in global demand.

The U.S. government began imposing a 19% tariff on Philippine exports on August 7, while a 1% excise tax on U.S. remittances is set to take effect in 2026.

“Though the Philippines’ exposure to U.S. demand is relatively low, the wider impact of U.S. tariffs on the global economy will affect its exports,” ANZ said.

The country’s services surplus, driven by the business process outsourcing sector, narrowed to $3.3 billion in the first quarter from $4.2 billion in the fourth quarter of 2024. The industry also faces risks from artificial intelligence adoption, which could displace low-skilled workers.

ANZ added that remittances, which account for about 40% of inflows from the U.S., could see modest pressure from the excise tax and potential weakness in the U.S. labor market.

Despite these risks, UA&P maintained that strong household consumption, easing inflation, and public investment would keep the Philippine economy on a stable growth trajectory in the near term.