Japan, the Philippines’ third-largest trading partner, saw its economy contract by 0.2 percent year-on-year in the first quarter of 2025, according to revised government data released recently. While the updated figure marks an improvement from the earlier 0.7 percent decline estimate, it highlights a reversal from the 2.2 percent growth logged in 4Q 2024 and marks the first annual contraction in a year.
The economic slump in Tokyo carries ripple effects across its trading partners, including the Philippines, which maintains over USD21 billion in bilateral trade with Japan. The decline was largely driven by weakening net exports amid rising U.S. tariffs—particularly a 25 percent levy targeting Japanese automotive exports, a key pillar of Japan’s industrial base.
Government spending in Japan also fell for the first time in five quarters, registering its steepest drop in nearly two years. However, pockets of resilience were evident, with private consumption and capital expenditure both expanding for a fourth consecutive quarter, suggesting domestic demand remains supportive.
Despite those bright spots, analysts caution that Japan’s trade slowdown could dampen regional supply chain flows and weigh on Philippine export sectors tied to Japanese manufacturing. A new corporate survey, released alongside the GDP revision, indicated faltering business investment, with expectations of a downward revision to capex in the final Q1 tally.
For Manila, which leans on Japan not only for trade but also for infrastructure financing and investment inflows, the short-term macroeconomic implications could include slower export receipts and reduced capital project momentum, said analysts. Policymakers are watching closely as Tokyo navigates domestic headwinds and global trade frictions.
The country’s trade landscape underscores its deepening integration with both Western and Asian economies, with China as its largest trading partner in 2023, followed by the United States and Japan, according to published data.
China led total trade with the Philippines, reaching approximately USD40.6 billion, driven largely by imports amounting to USD30 billion, or 23 percent of total imports. Exports to China stood at USD10.6 billion, accounting for 14.6 percent of total exports. This underscores the Philippines’ penchant for Chinese goods, raising implications for supply chain and inflationary pressures.
The United States remained the Philippines’ top export destination, with outbound shipments valued at USD11.4 billion, or 15.7 percent of total exports. Imports from the US reached USD8.4 billion, making the bilateral trade volume USD19.8 billion. The trade surplus with the US continues to serve as a buffer for the Philippines’ external position, providing critical dollar inflows and supporting the peso.
Japan, long a cornerstone of Philippine trade, maintained a balanced profile with USD10.4 billion in exports and USD10.9 billion in imports, totaling around USD21.3 billion. The robust exchange reflects longstanding industrial and supply chain ties, particularly in electronics and automotive parts.
Hong Kong served as a major re-export hub for Philippine goods, receiving USD8.8 billion in exports, or 12 percent of the total. Import data was not disclosed, but the city remains a vital conduit for Philippine electronics and semiconductors bound for mainland China and other markets.
South Korea posted a trade volume of USD12.4 billion, tilted toward imports (USD8.9 billion) compared to exports (USD3.5 billion). This trade deficit is attributed to the importation of fuel, industrial goods, and transport equipment.
The data highlight the Philippines’ strategic position in global trade networks, reflecting a diversified portfolio of partners. However, the widening trade deficits—particularly with China and South Korea—underscore challenges in domestic production competitiveness and reinforce the need for strategic trade and industrial policy reforms.
