The global economic outlook has significantly worsened amid rising trade tensions and persistent policy uncertainty, with global growth now forecast to slow to just 2.3 percent in 2025. According to the World Bank, this is the weakest pace outside of recessions since 2008. The slowdown, driven by escalating trade barriers and weak global cooperation, is expected to hit emerging markets and developing economies (EMDEs) particularly hard, including the Philippines.
For EMDEs, the deteriorating global environment poses serious macroeconomic consequences, the World Bank said. The gap in per capita income between these economies and advanced countries is set to widen further, undermining efforts to reduce extreme poverty, boost employment, and attract private investment. Notably, foreign direct investment (FDI) inflows into EMDEs have fallen to less than half their 2008 peak, with limited prospects for recovery.
Foreign direct investments in the Philippines dropped 62 percent on an annual basis to USD498 million in February, representing a five-month low, based on data from the Bangko Sentral ng Pilipinas.
Opportunistic portfolio investments, the kind that quickly exits the country at the first hint of trouble or greater reward elsewhere, aggregated only USD2.1 billion last year on a net basis.
The World Bank warns that downside risks dominate the outlook, including potential surges in trade restrictions, continued policy volatility, geopolitical instability, and climate-related shocks. For EMDEs like the Philippines, this means greater exposure to external vulnerabilities, tighter fiscal space, and mounting pressures on inflation and job creation.
To counter these trends, multilateral policy coordination and domestic reforms are deemed essential. EMDEs must prioritize fiscal resilience, revenue mobilization, and targeted social spending, while implementing structural reforms to improve institutional quality, develop labor markets, and enhance human capital. Regional growth projections for 2025 have been downgraded across all EMDE regions, with East Asia and the Pacific—including the Philippines—expected to slow in tandem with the weakening trade outlook.
