Citi raises growth forecast for PH

Despite the devastation caused by Supertyphoon “Yolanda,” prospects remain bright for the Philippine economy, according to a Citigroup research.

Citi has raised its gross domestic product (GDP) growth forecast for the Philippines next year to 7.3 percent, up from the previous outlook of 6.9 percent and the market consensus of 6.3 percent.

In a December 3 commentary, Minda Olonan, head of Citi’s equity research for the Philippines, said that while fourth quarter GDP could be slow due to the adverse impact of Yolanda, rebuilding efforts could prompt a sharp recovery in the first quarter of 2014.

As such, Citi expects growth to average above 7 percent for 2014 although for 2015, it sees growth to slightly slow down to 6.8 percent.  This is within the 6.5 to 7 percent growth range projected by Economic Planning Secretary Arsenio Balisacan for next year and higher than the consensus growth forecast of 6.1 percent.

Citi’s outlook is for a V-shaped GDP recovery, which means it will fall but will sharply bounce. The research note is titled:  “Beyond the Near Term, Trend Should Remain Positive.”

The bank’s base scenario is that the country’s current account will remain in a surplus position and inflation will range from 4 to 5 percent.  As such, Olonan said Citi had priced in a gradual 50-basis point hike in the Bangko Sentral ng Pilipinas’ key interest rates by the second half of 2014.

“Aside from the reconstruction theme, we see deployment of excess liquidity and gradually rising rates as key drivers of the market,” Olonan said.

In the meantime, Olonan noted that consensus expectation for 2014 was for corporate earnings growth to slow to 7.9 percent from the expected earnings per share growth of 11.1 percent in 2013. Earnings revision likewise dipped into negative territory in the second half of 2013, she noted.

“The slowdown is not broad-based and is largely driven by weaker bank earnings on falling trading income, which would also drag on profit growth of the parent conglomerates,” she said.

Olonan said Citi’s expectation of a V-shaped recovery implied that any share price weakness would be “an enhanced opportunity to accumulate big-cap stocks that benefit from investment spending and stable domestic consumption.”

Citi continues to favor SM Investments, Banco de Oro and Metropolitan Bank and Trust Co., while it sees the opening of Melco Crown Philippines’ casino in 2014 as a “positive catalyst” for this gaming stock.