BSP: Global Economic Uncertainty Weighs on Balance of Payments Outlook

The Philippine balance of payments (BOP) position is projected to be weaker in 2025-2026 due to slower global trade and subdued investor confidence linked to increased uncertainty in global trade policy and geopolitical developments. The outlook nevertheless reflects sustained expansion in the domestic economy, supported by easing inflation and less restrictive monetary policy.

Global economic growth is expected to remain soft in 2025 and 2026, as economies contend with U.S. trade policy changes and responses from trading partners. Global growth prospects are expected to be further dampened by several factors, including the ongoing weakness in the Chinese economy, prolonged geopolitical tensions in conflict zones of the Middle East and Eastern Europe, and commodity price volatility.

Domestic growth prospects, meanwhile, provide a cushion against global headwinds. Domestic expansion driven by private consumption, investments, including government infrastructure spending, as well as continued progress on legislative reforms to improve the business environment should encourage foreign investments and positively impact the external sector outlook in the near to medium term.

The overall BOP position is expected to show a deficit in 2025 and in 2026, with a wider current account gap resulting from a higher trade-in-goods deficit and lower net receipts in trade-in-services.

Merchandise exports are anticipated to record modest growth in 2025 and 2026 after two consecutive years of decline in 2023 and 2024. Semiconductor exports will see flat growth in 2025, attributed largely to the ongoing inventory correction and as the industry works to keep pace with the rapidly evolving global demand.

Services exports are also seen to post a modest expansion given slower growth in BPO services. The outlook for BPO services incorporates the adverse impact of the U.S. job reshoring agenda, as well as the domestic challenges in the supply of skilled workers in Generative AI (GenAI) and data analytics. The latter may hamper industry efforts to climb up the value chain and maintain competitiveness. Growth in Philippine tourism activity is expected to return to its pre-pandemic trend supported by the continued influx of international tourists, particularly from Korea and Japan.

Overseas Filipino (OF) remittances are expected to grow slightly below the long-term trend as major OF host economies, such as Saudi Arabia and Qatar, increasingly advocate for the localization of their workforce, affecting OFWs’ deployment prospects. Stricter U.S. immigration policies are expected to have a minimal effect on OF remittances, as most U.S.-based Filipinos are composed of permanent residents and documented migrants and fewer than 1 percent of total land-based OFWs are deployed in the U.S.

Meanwhile, the financial account will be buoyed by sustained net inflows from both foreign direct and portfolio investments. Investor interest will be supported by the country’s macroeconomic fundamentals, along with ongoing reforms to enhance the ease of doing business, optimize tax incentives, and improve capital market efficiency. The Philippines’ exit from the Financial Action Task Force (FATF) Grey List is likewise expected to contribute to investor confidence. Investment gains, however, may be tempered by a pause in U.S. monetary policy easing, which would limit capital flows to emerging market economies, including the Philippines.

For 2026, the overall BOP is anticipated to remain in deficit, consistent with the expected widening of the current account deficit relative to the 2025 forecast. Sustained net inflows from the financial account are anticipated to provide support to the BOP outlook. Nonetheless, significant downside risks persist, including uncertainty from U.S. trade and investment policies, weaker global activity and world trade, as well as ongoing geopolitical and trade tensions.

The country's gross international reserves (GIR) level is projected to decline slightly in 2025 and 2026 compared with 2024, reflecting reduced foreign exchange inflows from the exports of goods and services, as well as investments.

The BSP continues to emphasize limitations to the forecasts, particularly given continued buildup of external challenges. The BSP will continue to monitor closely emerging external sector developments and risks and how these may impact the BSP’s fulfillment of its price and financial stability objectives.