Manila: An economist remains hopeful of a 5.5 to 6 percent growth for the Philippine economy this year, amidst the hike in US tariff rates, saying there are domestic factors that will bolster domestic expansion. These include election spending for the May 2025 midterm polls, a manageable inflation rate, and additional cuts in the Bangko Sentral ng Pilipinas’ (BSP) key rates, the latter two of which are seen to boost domestic spending, are seen to counter any impact of higher US tariffs.

According to Philippines News Agency, Rizal Commercial Banking Corporation (RCBC) chief economist Michael Ricafort stated that the drag on Philippine GDP could be limited, as the Philippine economy is less reliant on exports as a source of economic growth. Philippine merchandise exports are significantly lower compared to major ASEAN countries on a yearly basis. The US accounts for 17 percent of the Philippines’ total exports in 2024, and Ricafort emphasized diversification to other developed regions like the Middle East, Europe, and the rest of Asia to reduce reliance on the US market.

Philippine Statistics Authority (PSA) data revealed a 26.1 percent growth in exports last June, a notable increase from the previous month’s 15.5 percent. Ricafort attributed this to front-loading among US businesses prior to the imposition of a 19 percent reciprocal tariff on Philippine exports starting August 1, 2025. Consequently, the first quarter domestic growth, measured by GDP, accelerated to 5.4 percent from the previous quarter’s 5.3 percent.

Ricafort forecasts second quarter GDP to be around 6 percent, spurred by election-related spending. He noted that an easing inflation trend below or near the central bank’s target of 2-4 percent would justify future cuts in key policy interest rates, fundamentally leading to faster economic growth. Easing inflation is expected to increase disposable income, boosting consumer spending, which accounts for nearly 75 percent of the Philippine GDP.

The rate of price increases in the first half of this year averaged 1.8 percent, with the June level rising slightly to 1.4 percent from May’s 1.3 percent. The lower-than-target inflation rate has allowed monetary officials to implement two consecutive 25 basis points reductions in the BSP’s key rates as of June, with further cuts anticipated this year. Currently, the BSP’s target reserve repurchase (RRP) rate stands at 5.25 percent.