Citi cuts growth forecast for PH economy

After five straight quarters of above 7-percent economic expansion, the Philippines may post a much slower growth of 4 percent this fourth quarter as a result of the typhoon devastation, American banking giant Citigroup said.

In a research note dated Nov. 28, Citi economist for the Philippines Jun Trinidad said the average growth of 7.4 percent for the first nine months would be a sufficient cushion to a sharply lower gross domestic product (GDP) growth this last quarter. Citi pared down its full-year GDP growth forecast for the country to 6.5 percent from an earlier outlook of 7.3 percent.

“We assumed Eastern Visayas GDP contribution of roughly 2.3 percent of GDP was wiped out by Supertyphoon Yolanda. The supply shock would run across [the region’s] production sectors facing severe power and infrastructure constraints. As of a result of this negative income shock, we shall miss [Eastern Visayas’] consumption that accounts for 106.9 percent of its GDP (2012),” Trinidad said.

Lacking this, Trinidad said national consumption probably eased to 4 percent year-on-year. Citi also tempered its outlook on exports growth (3.9 percent year-on-year), citing missing regional commodity exports. It is also expecting an investment slowdown.

“Absent a strong growth story, the Philippine peso would be exposed to strong US dollar pressure. Other risk asset markets would also lack investor appeal,” Trinidad said.

Stalled GDP momentum this fourth quarter, Trinidad said, would likely sustain fiscal and monetary accommodation that includes an overnight borrowing rate steady at 3.5 percent at the Bangko Sentral ng Pilipinas.

The country grew its GDP by 7 percent in the third quarter versus market expectations of 7.1 percent and Citi’s outlook of 7.8 percent.

While slightly lower than survey, Trinidad noted that the country’s third-quarter GDP growth registered a quarterly gain of 1.1 percent (seasonally adjusted quarter-on-quarter). He noted that key spending drivers in the third quarter were:

strong business capital investments (+22.3 percent);

robust public construction (+24 percent) for the fourth straight quarter;

compensation income from abroad grew 10 percent to elevate household consumption (+6.2 percent versus 5.3 percent in first half), and

export volume growth (11.5 percent) although imports sizzled (+15 percent) on the back of these spending catalysts.

“Upbeat private capex (capital expenditure) in the third quarter was the second straight quarter of two-digit gains in support of an investment ratio to GDP of 21.3 percent (vs first half ratio of 21.1 percent) to suggest a rising investment cycle,” Trinidad said.

Trinidad cited the robust growth in investments in transport equipment led by road vehicles and air transport and other general industrial machinery.

Meanwhile, he said weak Philippine peso had boosted purchasing power of overseas Filipino remittances and uplifted household consumption.