‘GDP target at risk with Trump tariffs’

MANILA, Philippines —  The country’s growth target for this year is now at risk as US President Donald Trump imposed reciprocal tariffs,  with the government seen resorting to higher spending to prop up the economy from the Liberation Day impact, according to a unit of Fitch Solutions.

In a report, BMI Country Risk & Industry Research said the 17-percent reciprocal tariff slapped on the Philippines could reduce gross domestic product (GDP) by 1.1 percentage points.

As such, BMI warned that this could put the government’s growth target at risk.

For 2025, the Cabinet-level Development Budget Coordination Committee expects the economy to grow by six to eight percent.

Given the potential economic fallout from Washington’s protectionist policies, BMI emphasized that more fiscal support will be needed to at least cushion the blow.

“Assuming a fiscal multiplier of 0.5, the government will have to increase its expenditure by around 1.4 percentage points to reach the government’s lower bound target of six percent,” BMI said.

Under this year’s budget framework, total disbursements would reach P6.18 trillion, equivalent to 21.5 percent of GDP.

But ramping up state spending does not come without risks as doing so will put the government’s fiscal position in jeopardy.

The BMI emphasized that the country’s fiscal position hardly recovered from the pandemic aftermath and remained a laggard in its fiscal consolidation process compared to its regional peers.

Currently, the debt level is still at the critical threshold of 60 percent.

“The country cannot afford the fiscal space it once did to substantially increase public spending without compromising debt sustainability over the next few years,” BMI said.

Given this, BMI maintained its fiscal forecast that the budget deficit would widen to 5.9 percent of GDP this year from 5.7 percent in 2024, effectively putting fiscal consolidation efforts on hold.

This is a reversal from what the government is expecting for the budget gap to further ease to 5.3 percent in 2025.

“The likelihood of the government having to incur a larger fiscal deficit has risen significantly against the backdrop of heightened geopolitical uncertainty,” BMI said.

Nonetheless, BMI is optimistic that the Philippines will succeed in negotiations with the Trump administration, leading to a reduction in the final tariff rate.