NOMURA GLOBAL Markets Research has trimmed its gross domestic product (GDP) growth forecasts for the Philippines for this year and 2026 following the weak first-quarter expansion.
Nomura cut its Philippine economic growth forecast to 5.3% for this year from 5.9% previously, it said in a report dated May 9. It also slashed its 2026 projection to 5.6% from 6.1%.
Both projections are well below the Development Budget Coordination Committee’s 6-8% growth target for 2025 until 2028.
“Our 2025-26 GDP forecast revisions take into account the disappointing first-quarter outturn, which only rose slightly to 5.4% year on year from 5.3% in fourth quarter 2024, despite election-related spending,” Nomura analysts Euben Paracuelles and Nabila Amani said in the report.
“Escalating global trade and geopolitical tensions are the main downside risks to growth. A faster rollout of infrastructure projects and lower oil prices are upside risks.”
The Philippine economy expanded by 5.4% in the first quarter, the government reported last week. This was a tad faster than the revised 5.3% in the previous quarter but sharply slower from the 5.9% growth in the same period in 2024.
Department of Economy, Planning, and Development Undersecretary for Policy and Planning Group Rosemarie G. Edillon said that GDP would need to grow by 6.2% for the rest of the year to reach the lower end of the 6-8% goal.
Based on its forecasts, Nomura expects the Philippines to post below-6% GDP growth for the rest of the year. Broken down, it sees GDP growth of 5.3% in the second quarter, 5.4% in the third quarter, and just 5% in the fourth quarter.
In 2024, the economy expanded by 6.5% in the second quarter, 5.2% in the third quarter, and 5.3% in the fourth quarter.
“A key source of the downside surprise [in the first quarter] was investment spending growth, which we believe suggests businesses have already turned cautious amid surging global trade uncertainty, even in a less open economy,” Nomura said.
“We expect a moderate pickup in real GDP growth in 2026, led by the government’s strong push for more progress on infrastructure projects.”
It added that it expects the country to post a current account deficit of 4.1% of GDP this year and 4.4% of GDP next year, wider than the 3.8% ratio in 2024, driven by an increase in capital goods imports amid the government’s infrastructure push and weaker exports due to the US’ tariffs.
“Positive terms-of-trade effects from lower oil prices should provide some offset,” Nomura said.
US President Donald J. Trump on April 2 announced that Washington will impose “reciprocal” tariffs on most of its major trading partners, including the Philippines.
However, Mr. Trump suspended the higher levies for 90 days starting April 9, instead implementing a blanket 10% tariff until July. Countries are now negotiating trade deals with the US.
SLOWER INFLATIONMeanwhile, Nomura also cut its full-year inflation forecasts to 1.8% from 2.2% for 2025, and to 2.7% from 2.9% for 2026.
Accounting for risks, the Bangko Sentral ng Pilipinas (BSP) expects headline inflation to average 2.3% in 2025 and 3.3% in 2026.
Headline inflation sharply slowed to 1.4% in April from 1.8% in March and 3.8% a year prior, the government reported last week. This brought average inflation in the first four months to 2%, at the low end of the BSP’s 2-4% annual target.
“The benign inflation outlook remains underpinned by a negative output gap, low crude oil prices, and the government maintaining supply-side measures,” Nomura said.
It added that slower inflation would give the Philippine central bank room to cut benchmark interest rates further and expects the BSP to deliver an additional 75 basis points (bps) in reductions this year.
“This would bring total rate cuts in this cycle to a sizeable 175 bps, with a terminal rate of 4.75%, below the 5% neutral rate. Supporting this view, BSP at the previous monetary board meeting signaled the need to shift towards a ‘more accommodative’ stance,” Nomura said.
The central bank resumed its easing cycle last month with a 25-bp reduction, bringing the policy rate to 5.5%.
It has now reduced benchmark rates by a total of 100 bps since it kicked off its rate-cut cycle in August last year.
The Monetary Board has four remaining meetings this year, with the next one scheduled for June 19. BSP Governor Eli M. Remolona, Jr. told Bloomberg last week that they are open to cutting rates by a further 75 bps this year amid cooling inflation.
Based on its forecasts, Nomura sees another 25-bp cut at the June meeting. It also expects the BSP to deliver a 25-bp reduction in both the third and fourth quarters.
‘CHALLENGING’ FISCAL CONSOLIDATIONOn the other hand, Nomura expects the government’s fiscal consolidation progress to remain slow as its revenues are unlikely to grow as fast as its expenditures, especially as the administration continues to pursue its infrastructure spending goals.
“We forecast only a slight narrowing of the fiscal deficit to 5.5% of GDP in 2025 from 5.6% in 2024, above the government’s medium-term fiscal framework (MTFF) target of 5.3%,” it said.
Nomura also expects the budget deficit to be at 5% of GDP in 2026, bigger than the government’s 4.7% target under the MTFF.
“We think MTFF targets, which include reducing the fiscal deficit to 3% of GDP by 2028, are challenging to meet due to spending priorities, such as flagship infrastructure projects, as well as dimming prospects of further tax reforms. President Marcos said infrastructure spending will be ‘strategically maintained at 5-6% of GDP.’ Finance Secretary Recto also withdrew from Congress the bill proposing changes to the Capital Markets Efficient Promotion Act (CMEPA), a key revenue-raising reform,” Nomura added.
It said the government’s budget deficit of P478.8 billion in the first quarter was equivalent to 6% of GDP on a 12-month rolling sum basis.
Finance Secretary Ralph G. Recto last month said the government is not seeking to impose new taxes or revenue measures amid the government’s robust fiscal position and withdrew the Department of Finance’s (DoF) proposed amendments to the Capital Markets Efficiency Promotion Act, which sought to increase capital gains tax, donor’s tax and estate tax.
The DoF had previously urged legislators to replace the CMEPA with the Government Revenues Optimization through Wealth Tax Harmonization (GROWTH) bill.
Under its draft GROWTH bill, the DoF proposed to temporarily increase the rates of capital gains tax on real property, donor’s tax, and estate tax to 10% from 2025 to 2030. These rates will be reduced to 6% starting 2031.
The DoF had estimated this could yield around P300 billion in revenues. — A.R.A. Inosante
