Philippines Seen as Safe Haven Amid Trade War Risks, Despite Slower Growth

The Philippine economy may fall short of its growth targets for 2024 due to high borrowing costs and limited government spending, but its domestic demand-driven structure positions it as a potential refuge in the event of a global trade war.

According to London-based Pantheon Macroeconomics, the country’s GDP is projected to grow by 5.4% in 2024, slowing to 5.2% in 2025 and 4.8% in 2026. These figures place the Philippines as the third fastest-growing economy in Emerging Asia, behind Vietnam and India.

However, these growth rates fall below the 6-6.5% target set by the Marcos administration for 2024 and the 6-8% growth goal for 2025 to 2028.

Factors Contributing to Slower Growth

Pantheon attributes the expected slowdown to:

• Elevated interest rates, which discourage borrowing and investment.
• Fiscal deficit reduction programs, which limit the government’s capacity to boost spending.

In the third quarter of 2024, GDP growth slowed to 5.2%, the weakest performance in over a year. Disruptions caused by storms that impacted government spending and agricultural output also contributed to this dip. To meet the government’s growth target for 2024, the economy would need to expand by 6.5% in the fourth quarter—a challenging prospect.

Philippines: A Potential Trade War Refuge

Despite slower growth projections, the Philippines’ lesser reliance on exports makes it a potential haven in the face of a global trade war, particularly if US President-elect Donald Trump enacts his proposed 10-20% tariffs on US imports.

“Emerging Asia is not homogeneous,” Pantheon explained. “Domestic demand-driven demographic giants like India, Indonesia, and the Philippines offer potential refuge in the event of a trade war.”

This resilience highlights the Philippines’ economic stability, particularly when significant parts of Emerging Asia remain highly exposed to external shocks.