The midterm elections in the Philippines, scheduled for May 12, have captured the attention of investors who are vigilant about potential shifts in government policies amid a global trade war that highlights vulnerabilities in one of Asia’s rapidly growing economies.
This election will determine 12 senators, over 300 congressmen, and nearly 18,000 local officials as policymakers strive to enhance investment and consumption in a challenging external environment. It also represents a significant test for President Ferdinand Marcos Jr. and his Vice President Sara Duterte, who support rival candidates.
Jonathan Ravelas, managing director at eManagement for Business and Marketing Services in Manila, emphasized that investors are observing whether the election will lead to continuity necessary for economic reforms. He noted that political instability is a risk the Philippines cannot afford, especially in a time of global uncertainty.
Data released recently showed that the economy grew by 5.4% in the first quarter compared to the previous year. This was slightly below the anticipated 5.7% expansion, but marginally faster than the last quarter of 2024. The government has targeted at least 6% growth for the year, following a slower-than-expected 5.7% expansion in 2024, although the economy continues to outpace much of Asia.
A Philippine trade delegation concluded initial discussions with U.S. officials, aiming to reduce the proposed 17% tariff by the Trump administration. This rate is considerably lower than those proposed for most of Southeast Asia, including a 46% rate on Vietnam, presenting an opportunity for the Philippines to gain a competitive edge if domestic reforms continue.
Paulo Duarte, President of the European Chamber of Commerce of the Philippines, remarked on EU investors’ caution regarding long-term operational inefficiencies. He advised the government to reduce operational costs and improve business facilitation to seize this strategic opportunity.
Despite the Philippines’ advantageous young, English-speaking workforce, challenges such as red tape, inadequate infrastructure and connectivity, high energy costs, and regulatory unpredictability persist, according to Ebb Hinchliffe, executive director at the American Chamber of Commerce of the Philippines.
Business leaders are pushing for more reforms beyond the recent measures, including corporate tax cuts and the removal of foreign ownership limits in sectors like renewable energy. A politically unstable post-election environment could divert focus from essential reforms.
Finance Secretary Ralph Recto withdrew a proposal to raise capital gains, donor, and estate taxes due to satisfactory tax collections. The proposed changes would have generated about 300 billion pesos ($5.4 billion) over five years.
The new Congress, set to convene in July, faces significant tasks, including addressing a pending bill to ban raw mineral exports, which is opposed by the local nickel industry.
Among legislative matters awaiting President Marcos’ signature is a bill to reduce the stock transaction tax, aiming to make the Philippines more attractive in comparison to neighboring countries. However, this potential reduction comes with a proposed 25% tax on dollar-denominated bonds for foreign firms.
Historically, midterm election years have seen an average return of negative 0.3% on local assets compared to a 12% gain during presidential election years since 1995, according to Ritchie Ryan Teo, chief investment officer at Sun Life Investment Management and Trust Corp. Despite political tensions, this has not impeded Congress’s legislative and budgetary functions, Teo noted.
The outcome of the elections bears particular significance for Vice President Duterte, as the elected senators will participate as jurors in her upcoming impeachment trial.
Dereck Aw, a senior analyst at Control Risks, commented that businesses remain indifferent to political conflicts, as long as they do not interfere with operations or profits. In fact, some businesses are relieved that political distractions prevent government interference.
With consumption driven by remittances from overseas Filipinos—amounting to a record $38.3 billion last year—accounting for about 70% of the country’s economic output, former central bank governor Amando Tetangco, now chair of SM Investments Corp., highlighted the benefits of a consumption-driven economy. He suggested this structure offers a degree of protection and insulation from global economic fluctuations.
The Philippine stock index has declined by 1% year-to-date through May 7, falling behind the 5% gain of the MSCI Asia Pacific index. However, local bonds have provided a 6.3% return for dollar-based investors, with the peso rising by approximately 4%.
Economic Planning Secretary Arsenio Balisacan reiterated that while political noise has been a constant, policy directions have largely remained steady. He stressed the importance of maintaining effective policies amidst political distractions.
Teresita Sy-Coson, an influential figure in SM’s banking, property, and retail ventures, advocated for focusing on business operations regardless of political developments.
