HIGHER tariffs that could undermine the country’s export earnings and investment growth will prevent the Philippines from attaining its growth targets until next year, according to the International Monetary Fund (IMF).
In a briefing in Manila on Wednesday, IMF Mission Chief for the Philippines Elif Arbatli Saxegaard told reporters that the Washington-based lender projects GDP to average 5.4 percent in 2025 and 5.7 percent in 2026.
The Development Budget Coordination Committee (DBCC) GDP target is at 5.5 to 6.5 percent in 2025 and 6 to 7 percent in the 2026 to 2028 period.
‘Risks to the growth outlook are tilted to the downside. The main external risks stem from prolonged global trade policy uncertainty, geopolitical tensions, and disruptive financial market corrections,’ Saxegaard said. ‘On the domestic front, more frequent and intense climate shocks would cause notable macroeconomic losses.’
Saxegaard also said these new projections emanating from the completion of IMF’s 2025 Article IV Consultation with the Philippines, are also downgraded from its July forecasts.
In July, the IMF estimated that full-year GDP growth could average 5.5 percent in 2025 and 5.9 percent in 2026. Saxegaard said this reflected the country’s weak economic performance in the first six months of the year.
It may be noted that in the first quarter, the country’s GDP averaged 5.38 percent and recorded 5.5 percent in the second quarter of the year. The average first semester growth, based on data from the Philippine Statistics Authority (PSA), was at 5.4 percent.
‘This revision reflects factors related to the performance in the first half of 2025, which was weaker than what we had anticipated. Some of the important drivers of growth will be the higher tariffs, which are imposed on the Philippine exports to the US, will weigh on exports and investment,’ Saxegaard said. ‘We see also high frequency indicators pointing to negative growth momentum in the second half.’
Climate change, Asean
Given the country’s slower growth, IMF recommended that the country should focus on efforts to address the changing climate and inspire greater cooperation in the Association of Southeast Asian Nations (Asean) when the Philippines assumes the chairmanship next year.
On climate change, the IMF recommended more programs that could better address climate conditions. She recommended enhancing green Public Financial Management (PFM) practices, with an emphasis on improving climate tagging systems and integrating climate considerations and estimating maintenance needs and costs.
She also noted that climate shocks to the economy are similar in effect to shortfalls in supply. Just a few days ago, Severe Tropical Storm Opong (international name Bualoi) hit the Philippines, entering through Samar, and exiting near Mindoro.
While there were no casualties, Opong affected up to eight transmission lines of the National Grid Corporation of the Philippines.
‘We think that there are a few areas where there could be further efforts, [like] public sector investment in adaptation, which is critical to raise macroeconomic resilience to climate shocks and also to protect the vulnerable by lowering the rebuilding costs when such shocks happen,’ Saxegaard said.
‘We have been looking at the impact of climate shocks on the Philippine economy, [and] what we find is that climate shocks do work like a supply shock: they tend to raise inflation and lower output,’ she also said.
Meanwhile, Saxegaard said the Philippines should start negotiating and implementing deep trade agreements. She also said the country should further enhance global value chain integration and resilience but will require steps to lower non-tariff barriers.
One of the ways this can be done is through Asean and with the country assuming the chairmanship of the association next year, this can be included in the agenda.
‘We understand that the government is already working on a very good agenda as part of its Asean leadership. We would support these efforts, including in terms of achieving higher integration, lowering trade and investment barriers across Asean countries, and better digital and payments infrastructure.’
Risks on the horizon
One of the things that the IMF intends to closely monitor includes private consumption, particularly consumer loans. Saxegaard said these loans have been rising and thus warrants close monitoring.
The Bangko Sentral ng Pilipinas (BSP) earlier reported that consumer loans to residents-which include credit card, motor vehicle, and general-purpose salary loans-grew by 23.6 percent from 24 percent.
The data showed salary-based General-Purpose Consumption Loans grew 6.4 percent in July 2025, albeit at a slower pace compared to the 8.3 posted in June 2025.
‘For private consumption, it’s more the consumer loans that have been growing quite fast in recent years that warrant monitoring. So we recognize it’s coming from a low base, but nevertheless it’s something to watch,’ Saxegaard said.
Apart from this, the IMF also flagged vulnerabilities in the real estate sector which is considered ‘quite important’ for the Philippine economy.
Saxegaard noted that vacancy rates remain elevated in some segments of the real estate sector and the banking system’s exposure to the real estate sector remains sizable.
In the second quarter, the number of real estate loans rebounded to 2.7 percent from a decline of 4.4 percent in the first quarter of 2025. The BSP said this was driven by an 8.9-percent growth in loan availments in Areas Outside the National Capital Region, which more than offset the sharp 45.6-percent contraction in the NCR.
‘The exposure of the banking system to the real estate sector is also an important part of their loan portfolio. With all of that, we do think that it’s important to monitor the potential risks from that segment in light of the high vacancy rates,’ Saxegaard said.
Apart from these, Saxegaard said it was also important to monitor the interconnectedness of the financial system, particularly the ‘exposure of banks to the non-financial corporate sector.’ She stressed that banks are linked to ‘complex conglomerate structures.’
In June, Moody’s Ratings said the ties between the country’s top conglomerates and the Philippine banking system is a ‘double-edged sword’ that could lead to contagion risks. These ties, the report said, allowed conglomerates access to capital and banks are given corporate lending opportunities, strengthening banks, there are risks.
It showed in its study that only six families in control of major conglomerates are the same ones linked to the country’s largest banks. Moody’s Ratings estimated that Philippine banks are the major source of funding by conglomerates. Part of these funds is the local currency bond market that was valued at $23.4 billion at the end of 2024.
‘If we look at the financial system in terms of the main linkages across different sectors, what really stands out is the exposure of banks to the non-financial corporate sector. Given those linkages, any risks in the non-financial corporates could feed into the banking system, so it’s again an important exposure that we advise the authorities to monitor and continuously assess potential risks because of this exposure,’ Saxegaard said.