It’s amazing how much a single man can ruin the global economy.
I’m talking of course about US President Donald J. Trump, whose actions and policy decisions of late have led to a tremendous and unsettling spike in global uncertainty. A specific index of economic policy uncertainty, for example, is now at an all-time high.
Trump lost no time in his second term, which started January this year. He almost immediately imposed tariffs even on the US’ greatest and closest allies, Canada and Mexico. Then in April he unilaterally started a global trade war through insane tariffs on almost every country in the world (even penguin-inhabited islands). Since then, Trump has pulled his punches, but the uncertainty of whether the tariffs will push through or not is unnerving the rest of the world.
Then just last week, it felt very much that the world was at the precipice of World War III. With tensions already sky-high in the Middle East, Trump ordered several bomber planes to destroy supposed nuclear facilities in Iran.
Trump then announced a momentary ceasefire, trying to broker between Israel and Iran. Some claim that this is part of Trump’s effort to get nominated for the Nobel Peace Prize. But I can’t imagine how dragging the US into yet another war in the Middle East, and instigating animosity between countries, can be a worthy of such prize.
All this is occurring less than half a year since Trump took office for a second term. Imagine what else he can do in the next 3.5 years.
What’s in it for PH
I discuss all this because Trump’s worsening of the global economy is already hurting the Philippine economy.
Shortly after Trump’s tariffs were announced, projections of growth for the Philippines were downgraded. Growth can further be choked off by escalating conflict in the Middle East.
There’s a risk that inflation might rise, too. You see, Iranian leaders are pushing for the closure of the Strait of Hormuz, a major gateway for oil exports in the Middle East. If that gateway is indeed constricted, supply and demand tells us that we should brace for higher global oil prices, as we had experienced in the past whenever turmoil occurred in the Middle East.
The cost of closing the Strait would be colossal, even for Iran. If it happens, I’m afraid we might experience something similar to what we had in the 1970s and 1980s, when huge spikes in oil prices stoked inflation domestically.
When you look at the records, a huge impetus for the First Quarter Storm in 1970 was the drastic rise in oil prices then. Transport workers and labor groups led the protest, and the ensuing unrest was used by the late dictator Ferdinand Marcos Sr. as one of the reasons for declaring Martial Law.
Fast-forward to the present day, if indeed the Middle East war escalates, then expect a heightened sense of social unrest as Filipinos feel the pinch in their wallets.
Lower growth targets
Rising global uncertainty led the economic managers of President Ferdinand Marcos Jr. to lower the country’s growth targets in 2025. On June 26, they announced it to range from 5.5-6.5%, down from the previous (and unrealistic if overly ambitious) target of 6-8%.
In a statement, the economic managers said: “The revisions take into account heightened global uncertainties, such as the unforeseen escalation of tensions in the Middle East and the imposition of U.S. tariffs.”
I would say, though, that there are much deeper problems for the Philippine economy, beyond the recent global developments.
Even before Trump won for the second time, the Philippine economy’s trajectory had become permanently lower. Eking out 6% growth year in, year out was something we kind of took for granted before the pandemic, when we had “robust macroeconomic fundamentals.”
Sadly, those fundamentals are not so robust now, and achieving 6% growth today is akin to squeezing blood out of stone. In the first quarter of 2025, we got a measly growth of 5.4%, the slowest pre-election growth we’d had in more than two decades.
The World Bank also gave a sober report about the Philippine economy, claiming that we’re likely to see just 5.3% growth for the entire of 2025. They added that we’re likely to become an upper-middle income country in 2027, contradicting the previous statements of Marcos’ economic managers, who said we’re going to reach that goal by 2026 (previously that was projected to be 2025, a target that keeps moving).
To hasten growth, a World Bank senior economist said we “really [need to] double down on reforms so that the Philippines can safeguard and accelerate its growth journey.” They prescribed more tax reforms and less restrictive business regulations, among other things. But these are things that multilaterals have been prescribing for decades now: they’re not at all new, and that tells you how much we’ve neglected to do our homework, making us less secure amid global shocks.
Beware higher inflation
What about inflation? Well, we continue to reel from the impact of the massive price jump of prices in 2022 and 2023. But inflation has abated, meaning prices are no longer jumping these days. This has given the Bangko Sentral ng Pilipinas (BSP) confidence to lower its policy interest rate on June 19 to 5.25%, amounting to a cut of 0.25 percentage points (or 25 “basis points”).
A lower policy rate nudges down interest rates on various loans throughout the economy, and this could encourage borrowing and spending. And it’s just as it should be, given anemic growth here and abroad.
But whether or not the rate downtrend continues will depend on global developments. The BSP said in a press release, “Emerging risks to inflation from rising geopolitical tensions and external policy uncertainty require closer monitoring.”
A ceasefire is holding for now, but if a full-blown and prolonged war breaks out and cuts off global supply chains, that will likely push prices up in the Philippines (we import so many things from abroad, including almost all our oil). When that happens, the BSP may very well stop reducing its interest rate, if there’s enough evidence that inflation is on the uptrend once more.
To sum, the global economy now is less secure because of global developments, and in particular, a lot of blame should go to the whimsical and often stupid actions of an orange-faced man. The longer he is in office, the greater damage he’ll do to the global economy. And that includes us. – Rappler.com
JC Punongbayan, PhD is an assistant professor at the UP School of Economics and the author of False Nostalgia: The Marcos “Golden Age” Myths and How to Debunk Them. In 2024, he received The Outstanding Young Men (TOYM) Award for economics. Follow him on Instagram (@jcpunongbayan).