The Philippines needs to urgently diversify its export markets and upgrade its role in global value chains (GVCs to remain globally competitive amid weak global demand, rising protectionism, and intensifying geopolitical risks, according to a new study by the Philippine Institute for Development Studies (PIDS).
In the discussion paper “Macroeconomic Prospects of the Philippines in 2025 to 2026: Restoring Confidence amid Glocal Transitions”, PIDS senior research fellow John Paolo Rivera, former research specialist Mark Gerald Ruiz, and research specialist Ramona Maria Miral said the country’s external sector remains a key source of resilience—but also a growing vulnerability.
“While the services trade surplus, particularly from IT-BPM and digital outsourcing, continues to offset part of the merchandise trade deficit, the evolving global trade environment—marked by US protectionism, slowing Chinese demand, and heightened geopolitical uncertainty—poses significant downside risks,” the authors said.
They warned that renewed tariff escalation under the Trump administration could reshape global semiconductor value chains, potentially diverting investments away from existing production hubs, including the Philippines.
“Unless strategic measures such as bilateral trade engagement, export market diversification, and domestic value-chain upgrading are accelerated, the country’s electronics export base could face margin compression and slower volume growth,” they added.
The study noted that the Philippines remains deeply embedded in the global electronics and semiconductor value chain, particularly in assembly, testing, and packaging—segments that face increasing competition and thin margins.
To mitigate these risks and strengthen global competitiveness, the authors urged policymakers to deepen market diversification within Association of Southeast Asian Nations, the European Union, and Regional Comprehensive Economic Partnership (RCEP) partners; roll out targeted incentives for advanced manufacturing; and improve trade facilitation to retain investor confidence.
“Concurrently, sustained investment in digital infrastructure and services export capacity can help cushion external shocks and preserve the Philippines’ foothold as a regional hub for knowledge-intensive industries,” they said.
Rivera, Ruiz, and Miral also highlighted that the IT-BPM sector and Global Capability Centers are at a structural inflection point, as automation and artificial intelligence reduce demand for traditional voice and rule-based services, particularly from the US market.
“The next wave of growth lies in higher-value services such as analytics, AI operations, enterprise IT, cybersecurity, and legal and health-technology services,” the authors said.
The study projects Philippine economic growth to rise from 5 percent in 2025 to 5.3 percent in 2026, supported by strong domestic demand, infrastructure spending, and continued expansion of the services sector.
Still, the authors cautioned that macroeconomic prospects remain contingent on the country’s ability to navigate an increasingly complex global trade and financial environment—requiring bold structural reforms, better governance, higher manpower quality, and stronger resilience to external shocks.