Financial giant Citigroup sees the Philippine economy hitting the high end of the government’s official growth target for next year on the back of higher state spending to rebuild areas destroyed by Supertyphoon “Yolanda.”
In a commentary released late last week, Citi said the domestic economy could grow by 7.3 percent in 2014. This is just a little below the top end of the government’s official target of 6.5 to 7.5 percent growth next year.
“The devastation wrought by typhoon Yolanda may slow fourth quarter of 2013 gross domestic product (GDP) growth, but the rebuilding efforts could prompt a sharp recovery in first quarter of 2014,” Citi said in its report.
Due to the slowdown in economic activity in the Visayas following typhoon “Yolanda,” the government said growth in the October-to-December period of this year might slow to 4.1 percent. This would be significantly weaker than the 7-percent growth in the third quarter.
However, full-year growth may still settle within the 2013 target of 6 to 7 percent, allowing the country to keep the distinction of being Southeast Asia’s fastest-growing major economy this year.
“Aside from the reconstruction theme, we see deployment of excess liquidity and gradually rising rates as key drivers of the market,” Citi said.
Citi likewise noted that the rise in consumer prices should stay within “acceptable levels” of between 4 and 5 percent in 2014. This would be higher than the expected 3-percent average inflation for 2013, but would still be within the BSP’s 3-5 percent target or next year.
With inflation expected to rise due to stronger demand in the country and the recovery of economic conditions abroad—which would both lead to higher prices of key commodities—the BSP would likely start tightening monetary policies starting the second half of 2014.
Citi said the BSP might increase interest rates by half a percentage point in the second half of next year. The BSP’s overnight borrowing and lending rates have been at record lows of 3.5 and 5.5 percent, respectively, since late last year.