PH growth seen to fall below 5% in 2016

THE PHILIPPINES may grow at its slowest pace of below 5 percent for the first time in five years in 2016 as faltering China could lead Asia into a “protracted” growth crisis and the global economy into a recession, economists from global banking giant Citi said.

In line with its sluggish global outlook for 2016, Citi has slashed its gross domestic product (GDP) growth forecast for the Philippines next year to 4.8 percent from 5.9 percent while expecting a gradual recovery of 5.1 percent in 2017.

The downgraded forecast is much lower than the average growth rate of 6.3 percent seen by the country in the last five years of the Aquino administration. It could also be the slowest since 2011, when growth in gross domestic product (GDP) eased to 3.7 percent from 7.6 percent in 2010.

Citi’s forecast GDP growth for the Philippines next year is also much lower than the consensus growth forecast of 6 percent. This also suggests that growth will be a notch below the 2016 consensus growth forecast of 4.9 percent for Southeast Asia’s four emerging economies (Philippines, Malaysia, Indonesia and Thailand).

In a research note dated Sept. 28 written by Citi economist for the Philippines Jun Trinidad, the GDP growth forecast for this year was kept at 5.6 percent, slightly lower than the consensus growth forecast of 5.8 percent.

With a bleaker growth forecast, Trinidad said the Bangko Sentral ng Pilipinas’ monetary policy rate bias would be to keep key interest rates on hold.

The country’s inflation rate, on the other hand, is seen to remain benign at an average 1.5 percent this year and 1.1 percent in 2016.

The downgraded growth forecast for 2016 was in line with Citi’s global recession call. “Global growth backdrop is much weaker now: The US economy was in better shape in the 1990s and the impact of [emerging market or EM] crises on global growth was lower. Now, [advanced economies] are weaker with more limited policy space, and an EM-led slowdown weighs more so on global growth; US-led expansion is unlikely to pull Asia out of its slump,” said another section in the Sept. 28 research note done by Citi’s Asia-Pacific research team led by Johanna Chua.

“We think that Asia is facing a protracted ‘growth’ crisis, not a financial crisis. However, it is precisely because we do not envision a financial crisis to facilitate a rapid adjustment that we do not know quite how long Asia’s ‘growth crisis’ will last,” it said.

Citi said it believed that potential spillovers of further Chinese yuan depreciation could have bigger implications for Asia than the yuan devaluation of 1994. External vulnerabilities are seen to become bigger issues in Sri Lanka, Indonesia and Malaysia and even China while noting that India and the Philippines looked “bulletproof.”