BSP study
MANILA, Philippines — A stronger and more volatile dollar has been the biggest external drag on Philippine investment, outweighing the impact of trade and policy uncertainty, according to the Bangko Sentral ng Pilipinas Research Academy.
In its April 2026 discussion paper titled The Impact of Global Shocks on Real Investment, the BSP said periods marked by a simultaneously stronger and more volatile greenback were linked to weaker aggregate investment activity in the country.
“At the aggregate level, investment declines in response to dollar volatility, particularly when the dollar is strengthening, as well as to heightened uncertainty in the US economy and global trade,” the authors said.
The study noted that heightened exchange rate volatility adds uncertainty to investment decisions, making both firms and lenders more hesitant to commit capital or extend financing.
Using gross fixed capital formation as a measure of investment, the BSP paper found that the combined effect of a stronger and more volatile dollar had a larger negative impact on Philippine investment to gross domestic product (GDP) than text-based measures such as world trade uncertainty and economic policy uncertainty.
The paper said a unit increase in the interaction of the dollar index and its volatility was associated with a 0.07 percentage-point decline in the investment-to-GDP ratio in the short run and a 0.1 percentage-point drop in the long run.
Based on fourth-quarter 2024 levels, this was equivalent to around P5.2 billion and P7.3 billion in lower investments, respectively.
Beyond the macroeconomic impact, the BSP said manufacturing firms and exporters of goods were among the most vulnerable sectors to global shocks due to their large foreign exchange debt exposures.
By contrast, local firms were found to be less sensitive to global shocks, while services exporters and financial firms showed greater resilience.
The BSP said the findings suggest that for goods exporters, the financial burden from foreign currency exposure may outweigh the benefits of earning in dollars.