By Luisa Maria Jacinta C. Jocson and Aubrey Rose A. Inosante, Reporters

A POTENTIAL RECESSION in the United States may pose risks to the Philippine economy as trade and remittances could slow down, analysts said.

However, Finance Secretary Ralph G. Recto said in a Viber message on March 15 that it is “too early to speculate” about a possible US recession and its impact on the Philippine growth outlook. 

Mr. Recto noted the Philippine growth target of 6-6.5% is “doable” this year. This is at the lower end of the government’s 6-8% target band for 2025.

“Overall, while the Philippine economy has strong domestic drivers, a US recession could still have significant ripple effects,” Ruben Carlo O. Asuncion, chief economist at Union Bank of the Philippines, Inc., said in a Viber message.

“A potential US recession could indeed pose risks to the Philippine economy through several channels,” he added.

The US is the top export destination for the Philippines, as well as its top source of remittances from overseas Filipino workers (OFWs).

“Although it is still speculative, movements of the US economy point to a high possibility of a recession in the next few months,” University of Santo Tomas Graduate School professorial lecturer Emmanuel J. Lopez said. 

Pricing in a US recession, Mr. Lopez slashed his growth projection for the Philippines to 6% from 6.5% amid these “negative possibilities.”

Signs of an escalating global trade war has rattled financial markets around the world. Since he returned to the White House, US President Donald J. Trump has pushed for a more aggressive tariff policy, but declined to predict whether the US could face a recession as a result.

On Monday, Mr. Trump said he would be imposing broad reciprocal tariffs and additional sector-specific tariffs starting on April 2.

Analysts warned of the potential impact on various channels of the Philippine economy, such as trade.

“The first is through trade as the US is one of the largest export destinations for the Philippines,” Moody’s Analytics economist Sarah Tan said in an e-mail.

“A slowdown in demand as a result of a US recession will hurt demand for goods produced in the Philippines,” she added.

Latest data from the Philippine Statistics Authority showed the United States remains the top destination of locally made goods in January, with exports valued at $1.13 billion, accounting for 17.7% of total export sales.

“The local market is bound to experience the effect of this development though we are a small fraction of the world market and economy, owing to the fact that the US is the Philippines’ biggest trading partner,” Mr. Lopez said.

Mr. Asuncion said a recession in the US could “lead to reduced demand for Philippine exports, affecting sectors like electronics, garments, and agricultural products.”

“This would negatively impact the trade balance and potentially slow down economic growth. We have seen this in the last few months of 2024, and this is likely to be aggravated if a US economic slowdown does happen,” he added.

Leonardo A. Lanzona, an economics professor at the Ateneo de Manila University, said the tariff war would also threaten the overall growth outlook.

While several Association of Southeast Asian Nations countries maintain diversified trade relationships, Mr. Lanzona said the Philippines’ most prominent export destination is in the US. 

“In this case, the prospective recession in the US can hurt the Philippines more as the country has figuratively placed a large proportion of its eggs in the US market, while the other countries have a more diversified trade pattern.”

Mr. Lanzona also said while high tariffs imposed by the US may not affect the economy significantly, a US recession is a “far greater concern.”

Meanwhile, Ser Percival K. Peña-Reyes, director of the Ateneo Center for Economic Research and Development, said a possible US recession will likely dampen remittance flows.

“Recession could mean weaker spending on Philippine output (our exports to the US), lower foreign direct investment, and lower remittances from overseas Filipino workers there who get unemployed,” he said. 

Latest central bank data showed the US was the top source of cash remittances last year, accounting for 40.6% of the total. Cash remittances rose to a record-high $34.49 billion, up by 3% from $33.49 billion posted in 2023.

“A significant portion of the Philippine economy relies on remittances from OFWs, many of whom are based in the US. A recession could lead to job losses or reduced income for these workers, resulting in lower remittance inflows,” Mr. Asuncion said.

This would weigh on household consumption, which accounts for three-fourths of the economy.

“On the flipside, we should stress that a majority of US-based OFWs are in medical-, engineering-, or education-based jobs, which are not likely to be affected by a recession. We have seen this during the pandemic,” he added.

Other areas of the economy that could be impacted are the business process outsourcing industry, Mr. Asuncion said, which serves many US-based clients. 

“While the impact might be less severe compared to other sectors, a prolonged recession could lead to reduced demand for outsourcing services as US companies cut costs,” he said.

“Or it could also flip the other way where companies will opt to outsource and save during difficult times and therefore the Philippines may actually benefit.”

Foreign direct investments could also dwindle amid a recession in the US, Mr. Asuncion said.

“Economic uncertainty in the US could lead to reduced foreign direct investment in the Philippines.”

“Investors might become more risk-averse, leading to a slowdown in new projects and expansions. This may have a lag, though, because current pledged investments would still be underway. Nonetheless, it is among the risk channels.” 

MARKET VOLATILITY
The recession could also affect the Philippines’ financial markets, amid its close ties to the United States, Astro C. del Castillo, managing director of First Grade Finance, Inc., said.

“A US recession would have a significant global impact and is likely to increase market volatility here. If a US recession does occur, we can anticipate a challenging period ahead.”

Investment banker and Managing Director at China Bank Capital Corp. Juan Paolo E. Colet said a recession in the US would have a negative spillover on the Philippines.

“A US recession would also likely lead to a slowdown in global trade and drag other key economies due to the massive size of American markets,” Mr. Colet said.

“If our exports and inward remittances fall, then that could dampen domestic economic growth and consumption, which would in turn affect corporate earnings. That’s why a US recession would be bad news for the stock market,” Mr. Colet added.

Mr. Asuncion said this could also impact “capital outflows and increased borrowing costs, if things indeed go south.”

“Financial markets are clear conduits of economic slowdown and soured investment sentiments,” he added.

To offset the spillover effects, Mr. Asuncion said the government will need to prepare mitigation efforts.

These include “diversifying trade partners, supporting affected industries, and maintaining financial stability.”

“Economists and other analysts suggest that monetary easing and increased public spending will further support (Philippine) economic growth amidst uncertainty of a potential US recession,” he added.