LIKE most of you, I wanted to see the big picture and zoom in on the Philippines. My sense is that the interdependent global economy is sinking like the Titanic, and no one has been able to stop it so far. I turned to Perplexity (an AI tool) to research on what’s causing it, the impact on the Philippines’ macro and micro economies, and what the realistic prognosis is for the Philippines to survive. Here goes.
The global economy isn’t collapsing; it’s fragmenting. World goods trade will still grow about 3.9 percent this year (WTO), but almost all of that comes from the AI hardware boom. Outside AI-related goods, trade growth has been "weak or negative" (World Bank via ICIS). Common rules are giving way to deals, carve-outs and coercion.
In a period of 18 months Washington set the tariff on Philippine goods at 17 percent, 20 percent, 19 percent, zero, 10 percent and 12.5 percent (Gulf News). Beijing has turned rare earths into a licensing weapon, and a sweeping package of suspended controls could return on Nov. 10 (TechTimes). The Iran war caused what the WB calls the largest oil supply disruption on record (The Asian Banker), and Brent is still above $100. The WTO estimates that a world split into blocs would leave global GDP 5 percent to 7 percent lower by 2050 (WTO).
No neighbor carries our combination of exposures:
– Our security partner is the US.
– China supplies about 30 percent of our imports (Daily Tribune).
– At least 90 percent of our oil comes from the Middle East.
– The Gulf and the US together send roughly 60 percent of our remittances.
This year all four came under strain at once. The WB now calls the Philippines "the outlier in East Asia": hurt more than its neighbors by energy prices and helped less by the AI boom (BusinessWorld). The numbers show it:
– Growth: 2.3 percent in the second quarter, the weakest outside the pandemic since 2009 (Trading Economics).
– Inflation: 7.2 percent in September (PSA via Philstar), and 9 percent for the poorest 30 percent of households (Philstar).
– The peso: a record low of P62.90 to the dollar, while foreign reserves fell to a three-year low of $100 billion (GMA News).
– Jobs: about 740,000 more Filipinos are jobless than a year ago (Metrobank).
– Remittances: growth has slowed to just over 2 percent (Daily Tribune).
– Food: we import about 90 percent of our fertilizer. With a very strong El Niño arriving, PIDS projects rice prices could rise by up to 19 percent (PIDS).
Jeepney drivers, fisherfolk and small businesses are living this crisis at the pump and the market. Informal settlers are hand-to-mouth.
Honesty requires a harder admission: Not all of this was imported. Public infrastructure spending fell 36 percent in the first seven months of the year as the flood control scandal froze public works (Philstar). When the world turned hostile, the one growth engine the state fully controls stalled. Global fragmentation lit the fire. Our governance failure removed the firebreak.
What comes next.
The likeliest path is a grind, not a crash. Growth should land around 3 percent to 3.7 percent this year, inflation should stay above target into mid-2027, and the recovery will probably fall short of the 5.2 percent that the World Bank expects for 2027. The danger is a compound shock: China reimposes its controls, the AI boom cools and stalls our only booming export, and oil stays above $100 through winter. Then growth falls below 3 percent and food prices surge.
The deeper risk is quieter. Fragmentation rewards countries that make themselves indispensable to a bloc's supply chains and punishes those that merely sit between blocs. Vietnam and Malaysia are winning AI-linked investment. We are not, held back by some of the region's highest power costs. AI is also changing outsourcing — our biggest services export. The industry itself now expects revenue to grow faster than jobs (The Business Manual). Exporting labor and importing everything else won’t carry the next decade.
What to do.
The response must match the threat.
– Aim relief at those who need it. Don’t suspend excise taxes on gasoline and diesel, which mostly helps upper-income households (Daily Tribune). Keep the LPG and kerosene relief. Extend fuel discounts to tricycle drivers and fisherfolk. Send cash to the poorest households through reliable channels.
– Defend the peso without draining reserves. The BSP should keep tightening in measured steps and supply dollars to oil importers through currency swaps rather than spot-market sales.
– Restart public works with transparency built in. Fast-track projects that already have lender oversight. Publish contracts and geotagged progress, and have state auditors review spending in real time. The cure for corruption can’t be paralysis.
– Build a food shield now. Before the El Niño harvest losses arrive, provide fertilizer credit for smallholders, stock up rice buffers, time rice imports so they don't crash farmgate prices, and quickly roll out solar irrigation.
– Treat energy as national security. Fund the DOE’s planned strategic petroleum reserve of 60-90 days (Malaya). Buy crude beyond the Gulf. Hold the offshore wind auction on schedule. Cut power costs in industrial zones to attract the chip and data-center investment now going elsewhere.
– Diversify. Seek new export markets in Japan, Korea and Europe. Open new overseas jobs destinations. Steer US senders toward bank-funded transfers, which the new 1 percent remittance tax doesn’t cover. Expand reskilling of outsourcing workers at least tenfold beyond this year's 10,000.
– De-risk, don't decouple. Find second suppliers for the few dozen inputs where Beijing holds real leverage, and document our forced-labor compliance to win the lower 10 percent US tariff.
– Build an early-warning system. Create a standing economic-security dashboard that tracks shipping chokepoints, critical inputs and remittance corridors, with response playbooks that trigger automatically instead of after weeks of debate.
The world economy has stopped running on trust. The Philippines can keep absorbing shocks that others send our way, or redesign itself to absorb fewer of them. We no longer have the luxury of deciding later. And may God help us all get through this.
Rafael Alunan 3rd is a governor of the Management Association of the Philippines; chairman of Pepsi-Cola Products Philippines, Inc., and an independent director of the APC Group.
