FOR SEVERAL TIMES, I called attention to the economists in both government and private sector about giving rosy forecasts about the economy, despite the harsh realities besetting the globe these days.
Finally, Finance Secretary Ralph Recto forecast the economic growth to be below 6 percent this year– despite the good performance in the second quarter, because of the uncertainty over the tariffs imposed by the Trump administration.
“I think the second quarter, for sure will be better than the first but full year expansion is likely to be below 6% amid uncertainty over US tariffs,” Recto told reporters on Wednesday.
Recto said this second-quarter forecast depends on government spending and household consumption, which accounts for over 70% of the economy.
In the first quarter, gross domestic product (GDP) grew by 5.4%, weaker than expected and slower than the 5.9% expansion in the same quarter last year.
For the full year, GDP may grow by around 5.7% to 5.8%, he said.
“Realistically, probably 5.7%, 5.8% for the year. But there’s still a possibility, (but) it depends because there’s a lot of uncertainty — uncertainty with trade policy. There’s no final [tariff rate] yet,” Recto said.
ECO MANAGERS REDUCE GROWTH TARGETS
Economic managers last month lowered the full-year growth target to 5.5%-6.5% from 6%-8% previously, “reflecting a more measured and resilient outlook amid global headwinds.”
Last week, US President Donald J. Trump announced a 20% tariff on most Philippine goods sent to the US, higher than the 17% previously announced in April, Business World recalled.
Philippine trade negotiators are in Washington this week to secure a deal with the US.
President Ferdinand R. Marcos, Jr. to meet with Mr. Trump during his official visit to Washington from July 20 to 22.
Budget Secretary Amenah F. Pangandaman told Business World she remains confident in meeting the GDP growth target this year on the back of strong domestic demand.
“Our growth momentum is expected to be driven primarily by strong domestic demand, specifically, robust household spending and accelerated government investments in social services and critical infrastructure,” Pangandaman, chair of the Development Budget Coordination Committee, said.
She also noted the resilient labor market and easing inflation will support growth momentum.
Inflation averaged 1.8% in the first six months of the year.
“In addition, lower inflation creates room for the Bangko Sentral ng Pilipinas (BSP) to ease monetary policy, which would help sustain consumption and domestic activity, reinforcing our growth trajectory,” Pangandaman added.
BSP RATE CUTS
The BSP delivered a second straight 25-basis-point (bp) cut at its June 19 meeting, bringing its policy rate to 5.25%.
BSP Governor Eli M. Remolona, Jr. intoned that they could deliver two more cuts this year.
Similarly, DoF Undersecretary and Chief Economist Domini S. Velasquez said it may be difficult for GDP to grow more than 6% this year amid an expected global slowdown due to US tariffs.
She said the US tariffs have slowed international trade and “dragged down all the growth prospects of all the countries, including the Philippines.”
“We do think that the potential of the Philippines is at the minimum 6% growth. But of course, it’s quite difficult, especially now with some of the challenges that we’re seeing,” she told reporters late Tuesday.
INCREASINGLY CHALLENGING
Union Bank of the Philippines, Inc. Chief Economist Ruben Carlo O. Asuncion said it is becoming increasingly challenging for the government to reach 6% growth this year.
“Hitting the 6% midpoint will depend on how strongly domestic demand can offset external risks,” he shared with Business World.
“Domestic demand is expected to remain resilient but cautious in the near term… Growth will be driven by everyday retail channels, but broader consumption recovery may hinge on stronger job creation and improved purchasing power,” he added.
Velasquez said the US tax on remittances would likely impact 12.8% of the Philippines’ total annual remittances.
“In our estimate, when we used the survey of overseas Filipinos, 12.8% say they’re receiving remittances from North and South America,” she said.
US President Donald J. Trump on July 4 signed into law the “One Big Beautiful Bill,” which overhauls tax rates and spending. It imposes a 1% excise tax on cash-based remittances from the US to recipients abroad. The tax will be implemented starting Jan. 1, 2026.
The tax, Velasquez said, would impact around $1.9 billion in remittances from the US in 2026.
“For example, we estimate $36.5 billion in remittances by 2026, and $1.9 billion will be affected and will be taxed 1%,” she added.
In the first five months of the year, cash remittances grew by 3% to $13.77 billion from $13.37 billion in the comparable year-ago period.
The United States was the top source of remittances in the five-month period, accounting for 40.2% of the total.
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