Authored by: Antonio Panis, Paulo Pilar, Hans Elma
Edited by: Elijah Soriano, Ethan So, Justin Choi, and Jared Go
Latest Economic Data
Philippine Economic Data
BSP holds RRP constant at 5.75%
YoY CPI Inflation at 2.9%
YoY Q4 GDP growth at 5.2% vs consensus 5.4%
US Economic Data
Federal Reserve holds target Federal Funds Rate constant at 4.25% to 4.50%
YoY CPI Inflation at 3.0% vs consensus 2.9%
Introduction
The Philippine economy remains in a delicate state, as inflation slows but external pressures from global trade persist. Growth drivers for 2025 decelerating inflation and increased infrastructure spending (Bangko Sentral ng Pilipinas, 2025). Meanwhile, in the United States, the economic landscape is evolving under Trump’s new adminisration. The Federal Reserve’s recent monetary policy report shows a solid economy with a cooling job market and decreasing inflationary pressures (Monetary Policy Report, 2025).
US Inflation Concerns
Since taking office, President Trump has prioritized trade protectionism and stricter immigration policies under his "America First" agenda. One of his actions under this includes withdrawing from the Paris Climate Accord, ending asylum for illegal border crossers, and aiming to reduce the cost of living (The White House, 2025a). To address national security concerns related to illegal immigration and drug trafficking, his administration imposed a 25% tariff on imports from Canada and Mexico, a 10% tariff on Canadian energy resources, and a 10% tariff on all Chinese imports (The White House, 2025b). These actions triggered retaliatory tariffs from Canada, Mexico, and China, affecting over $100 billion in U.S. trade and causing global market disruptions (Bate, 2025). However, Trump postponed tariffs on Canada and Mexico by 30 days following increased commitments from both countries to curb fentanyl trafficking and illegal border crossings (Boak, 2025).
Figure 1. Top 3 Exporting Nations to the US
Source: Reuters
Trump's tariffs are expected to hit $1.3 trillion in trade—43% of U.S. imports; this could potentially trigger a supply shock and reduce GDP by 1.2% (Bloomberg Economics, 2025). Contrary to reducing the cost of living, Trump’s tariffs may drive up prices on everyday goods, like food from Mexico and Canada, Chinese electronics, and Canadian oil and gas (Wallace and Buchwald, 2025). As a result, U.S. inflation expectations are up from 3% last month to 3.3% in February (Golle, 2025).
In response to these concerns, the Federal Open Market Committee (FOMC) meeting decided to keep interest rates unchanged at 4.25–4.5%. This cautious approach reflects the ongoing inflationary pressures and fiscal policy uncertainty, balanced by the strength of the labor market (Federal Reserve, 2025). Market participants continue to monitor these developments, as tariff-induced inflation and monetary policy adjustments are likely to influence economic outcomes in the near future.
Rise of DeepSeek
On January 27, 2025, U.S. equities experienced declines with the S&P 500 and Nasdaq dropping 1.46% and 3.07%, respectively. The decline happened as investors weighed the implications of a potential shift in AI leadership following the release of DeepSeek, a Chinese AI startup.
The founders of DeepSeek claim to have developed a large language model named DeepSeek-R1 which rivals existing AI models from U.S. tech giants but at a significantly lower cost. DeepSeek states that its R1 model is 20 to 50 times cheaper to use than OpenAI's o1 model, depending on the task (Carew, Cooper, and Banerjee, 2025). While the full details of the performance benchmarks are still under evaluation, the announcement has already drawn significant attention as it signals China’s rapid technological advancement in the global AI landscape.
With DeepSeek stating that it only cost the company $6 million and less-advanced Nvidia chips to build its AI model, analysts are now questioning the amount of spending U.S. firms are throwing at AI infrastructure (Soni and Kachwala, 2025).
The market’s reaction to DeepSeek has been swift and significant with major tech stocks such as Nvidia, AMD, Microsoft, and Alphabet seeing notable drops. Nvidia, in particular, suffered a record one-day market value loss estimated at around $593 billion (Carew, Cooper, and Banerjee, 2025).
Figure 2. Tech Stocks’ Performance After DeepSeek Announcement
Source: TradingView
Philippine GDP
The Philippine economy grew 5.6% for the whole year of 2024, falling short of the government’s 6%-6.5% target. Similarly, fourth-quarter Year-on-Year GDP growth fell short of expectations at 5.2% vs 5.4% (Lema and Flores, 2025). The shortfall highlights the ongoing economic challenges the country faces, such as extreme weather events, geopolitical tensions, and weakened global demand. Despite these hurdles, growth was driven by the industry and services sectors, supported by strong consumer demand and infrastructure investments under the government’s “Build, Better, More” program. However, the agriculture sector suffered significant setbacks, with Typhoon Kristine and Leon causing up to PHP 6.83 billion in damages to crops, livestock, and fisheries (Department of Agriculture, 2024). Rice crops suffered the most damage at P5.05 billion, worsening inflationary pressures (Inquirer, 2024).
Household consumption slowed to 4.7% in 2024 due to rising inflation and economic uncertainties, while government expenditures increased by 9.7% to stimulate growth and recovery (Lema and Flores, 2025). However, the country’s reliance on government spending for economic growth raises concerns, as the high debt-to-GDP ratio of 61.3% limits the government’s capacity for continuous stimulus without risking long-term fiscal stability (Inosante, 2024). The economy’s vulnerability to natural disasters and external shocks also contributed to supply chain disruptions and food shortages, further reducing household purchasing power.
To address inflation and boost economic activity, BSP Governor Eli Remolona signaled potential monetary easing measures, including a 200 basis point reduction in reserve requirements (Maligro, 2025).
The Road Ahead
The Philippine economy remains at a crossroads, navigating both domestic challenges and external pressures. Global uncertainty remains a key theme moving forward with global trade tensions rising and rapid advancements in artificial intelligence, such as Deepseek’s cost-efficient large language model. As the country moves into 2025 with a GDP target of 6%-8%, the government has implemented key measures, including a $109 billion USD allocation for infrastructure development to improve transportation networks and legislation to attract foreign investments by lowering corporate tax rates and enhancing fiscal incentives, particularly for technology and manufacturing sectors (Flores, 2024). However, for sustained growth, the Philippines must diversify beyond government spending and consumer demand, focusing on fostering innovation and creating a more investment-friendly economy.
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