The Philippines' economy wobbles amid tariff threat

First quarter GDP accelerated to a 5.4% pace from 5.3% in 4Q, but that missed the 5.7% market consensus. Breaking down the most recent GDP figure reveals that underlying domestic demand strengthened - especially after a burst of pre-election spending - but also suggests that external pressures and investment uncertainty linked to US tariffs are weighing on the economy.

Household consumption, the mainstay of Philippine GDP, strengthened to 3.9% from 3.6%. Public spending jumped, adding 2.6 percentage points to overall growth.

The flip side of all that spending is its composition. A large share has been import-heavy; that has pushed net exports into negative territory, dragging GDP down by 2.1 percentage points.

The export figure could have been healthier had Philippine firms not faced significant headwinds. Capital formation rose by just 0.9% in Q1, down from 1.2% in the previous quarter.

Our subsequent charts show how industrial production and net sales of local manufacturers slowed in March, as well as how foreign direct investment (which had been led by utilities) has been steadily slowing after strength in mid-2024. This environment helps explain the central bank's guidance that more rate cuts are likely, and its concern that the peso not become overvalued.

To be sure, the Philippines are less exposed to exports than ASEAN counterparts, especially Vietnam. Our final chart compares the purchasing managers index (PMI) across Southeast Asian nations in recent months; while most ASEAN economies saw their manufacturing PMIs slip into contractionary territory, the Philippines' PMI remained above the 50 mark that indicates expansion. However, this resilience may prove fleeting if it relied too heavily on that burst of domestic spending.

If you are a CEIC user, access the story here.