Slower economic growth for PH seen

After beating expectations last year with a growth rate of 7.2 percent, the Philippine economy is seen to grow at a slower pace this year but infrastructure projects under the public-private partnership (PPP) framework are seen perking up growth back to more than 7 percent in 2015.

American banking giant Citigroup sees the Philippines posting a slower gross domestic product (GDP) growth of 6.8 percent this year but sees growth hitting 7.3 percent next year with big PPP projects such as the Mactan-Cebu international airport rehabilitation project.

HSBC, on the other hand, expects the effects of Super Typhoon “Yolanda” and weaker local demand to slow Philippine growth this 2014 to 5.9 percent.

Last week, the Philippines announced that fourth-quarter GDP grew by 6.5 percent, beating market consensus forecast of 6 percent. This brought full year growth to 7.2 percent despite the adverse impact of Yolanda in the last quarter.

“While the future certainly looks bright and the Philippines has turned around from being a laggard of Asia to one of its bright spots, there are reasons to remain vigilant,” HSBC economist Trinh Nguyen said in a research note dated Jan. 30.

Nguyen said growth was likely to slow this first quarter of the year on weaker agriculture output due to the impact of “Yolanda.” Furthermore, a weakened peso is seen to cause import costs to rise.

“This means that while improved global demand should support export growth, import costs will be a drag on GDP growth. The exchange rate pass-through of a weaker peso will also have an impact on headline inflation,” Nguyen said.

Both HSBC and Citi expect the Bangko Sentral ng Pilipinas to keep key interest rates unchanged during its first monetary setting for 2014 this Thursday.

Citigroup economist for the Philippines Jun Trinidad said: “We expect the overnight rate to remain unchanged, but officials could signal tightening to curb Philippine peso vulnerability in an (emerging market foreign exchange) selloff environment, in which the Philippine peso is unlikely to be spared.”

For this year, Trinidad said primary fiscal expenditures, led by infrastructure (including reconstruction costs), should dominate first-semester spending. He added that import content of growth was likely to increase in the second half and base effects for some components, like exports, could restrain headline GDP growth even as the momentum remained upbeat.

Trinidad added that the weaker peso would bode well for consumption outlook for as long as inflation impact was limited.

“We expect real exchange rate gains in firs half of 2014 to support purchasing power of remittances, sustaining consumption gains, while rehabilitation work in the typhoon-devastated areas should gradually restore the region’s contribution to GDP. As inflation rises while BSP’s tightening signals/actions mitigate Philippine peso weakness in the second half of 2014, other GDP components should take the lead in sustaining the upbeat momentum,” Trinidad said. Doris C. Dumlao