WHEN NEW TAX laws are passed, it hits first the working sector, referred to as the middle class – and never the wealthy because the government believes that the rich provide the capital for industries, or so we thought.
Some are just happy spending ostentatiously while the middle class who depend on earnings are slapped with the heaviest taxes.
The Philippine middle class is increasingly carrying the heaviest burden of the country’s “squeeze economy,” absorbing rising prices, elevated borrowing costs and slower economic growth while receiving little of the government assistance available to lower-income households.
John Paolo Rivera, a senior economist at the Philippine Institute for Development Studies (PIDS), said middle-income families have quietly become the country’s primary “shock absorber” as inflation remains elevated, businesses postpone expansion and consumers stretch their budgets further to cope with higher living costs.
“The middle class was actually absorbing all of this,” Rivera told ANC’s Business Outlook.
“Middle-income households experience budget compression because they are the ones absorbing rising costs without necessarily qualifying for government assistance.”
He described the middle class as “the quiet absorber of economic shocks,” noting that many families earn too much to qualify for subsidies but still struggle with rising expenses for food, transportation, education, housing, and loan repayments.
Minimum wage earners continue to feel the immediate impact because most of their income goes toward basic necessities, Rivera said, while stressing that families depending on overseas Filipino workers (OFWs) are becoming increasingly vulnerable if remittance growth continues to slow while the cost of living remains high.
Rivera’s assessment comes as the Bangko Sentral ng Pilipinas (BSP) raised its key policy rate to 4.75 percent in June, its second increase this year and the highest level in roughly three years, as policymakers sought to keep inflation expectations anchored following global oil price volatility, ABS-CBN said.
The World Bank projects Philippine economic growth at 3.7 percent in 2026, below the government’s target, and would continue to be below target through 2028, underscoring the challenges facing households and businesses alike.
OVERSEAS REMITTANCE
For decades, remittances from overseas Filipinos (OFs) have served as one of the country’s strongest buffers against economic downturns. Rivera said that cushion remains important, but is no longer enough to offset deeper structural weaknesses.
“I would not say that it’s weakening now, but we are seeing the limitations of this shock absorber,” he said.
The BSP said cash remittances continue to register annual growth, although at a more moderate pace than in previous years. Rivera said the slower trajectory should serve as a wake-up call for policymakers.
“We still see a trajectory of remittance growth,” he said, but at a rate more modest than before.
Household consumption accounts for roughly 70% of the Philippine economy, making consumer spending the country’s biggest engine of growth. Rivera said relying indefinitely on money sent home by OFs is no longer sustainable.
This tells us that we cannot indefinitely or permanently rely on remittances from overseas workers to compensate for our structural and domestic weaknesses in the country.
He urged the officials to strengthen domestic growth engines by investing in agriculture, manufacturing, tourism, the creative economy and emerging industries such as the blue, green and orange economies.
“Remittances should be a complement to economic development, not a substitute for it.”
COSTLY VOLATIVITY
Even as tensions in the Middle East have eased and global oil prices have retreated from recent highs, Rivera cautioned that businesses should not expect a return to the operating environment they enjoyed before the latest geopolitical crisis.
He said markets no longer react only to actual disruptions in oil supply. Increasingly, investors and businesses are pricing in the possibility of future geopolitical conflicts, making uncertainty itself more expensive.
“We are entering a world where persistent uncertainty and geopolitical risks have become embedded into commodity pricing,” Rivera said.
“Volatility now has become an economic cost,” he said.
Because the Philippines imports most of its petroleum requirements, fluctuations in global oil prices eventually filter through transportation, logistics, electricity, and food prices, even after geopolitical tensions begin to ease.
That lingering uncertainty, Rivera said, continues to weigh on business planning, investment decisions and ultimately household purchasing power.
WAIT OVER EXPANSION
The same uncertainty is influencing how companies deploy capital.
Rivera said many firms are choosing to preserve cash instead of pursuing expansion plans while interest rates remain elevated and the economic outlook remains uncertain.
Drawing from a recent PIDS study on firm behavior during periods of uncertainty, he said businesses are looking beyond interest rates alone.
“Firms are actually very keen on preserving their liquidity,” Rivera said.
The signals companies are waiting for include lower borrowing costs, policy certainty, and institutional stability that would allow them to plan beyond the next few quarters.
“Rather than doing a wait-and-see strategy, these indicators would actually tell them that there is a certain trajectory that is quite stable that they can rely on.”
Rivera stressed that investments rarely disappear altogether — “Investment is not canceled forever. It is just often relocated.”
If neighboring economies consistently offer greater policy predictability and stronger investor confidence, he warned, capital will simply flow elsewhere, eroding the Philippines’ competitiveness in Southeast Asia.
THE NEW NORMAL?
Rivera said external shocks such as geopolitical conflicts may trigger economic slowdowns, but they are no longer the country’s biggest challenge.
“If growth persistently falls below targets for an extended period of time, it ceases to be purely an external story.”
The Philippines must address long-standing structural weaknesses that determine how quickly the economy recovers from external shocks. Priorities must be raising productivity, reducing dependence on imported energy, accelerating infrastructure execution, strengthening food security, restoring investor confidence, and improving institutional quality.
“If we do not resolve or address these issues sooner, slower growth might become a new normal rather than a temporary phase.”
For the next 12 to 18 months, Rivera expects stabilization rather than a sharp and rapid rebound.
“The economy will likely grow, but more modestly, unless investment conditions improve, economic confidence is restored, and reforms are accelerated.”
RESTORING CONFIDENCE
Rivera said restoring confidence may ultimately prove just as important as bringing inflation under control.
Lower oil prices alone will not be enough, but the country must rebuild the confidence of businesses to invest, expand and hire, while giving households greater certainty that their purchasing power and living standards can recover.
