Citi sees PH growing faster at 6.3% after strong Q1

AMERICAN banking giant Citigroup has upgraded its economic growth forecasts for the Philippines this year and next year following the strong momentum seen in the first quarter during the run-up to the presidential elections.

Citi is expecting the country’s gross domestic product (GDP) to expand by 6.3 percent this year, significantly higher than the bank’s earlier forecast of only 5.4 percent.  For next year, growth is seen at a faster pace of 6.5 percent compared to 6 percent previously.

“Shedding global recession risk coupled with strong domestic demand to kick-start 2016, growth exceeding 6 percent was more than plausible,” Citi Philippines economist Jun Trinidad said in a research note dated May 19.

It was reported last week the country’s first quarter GDP had expanded by 6.9 percent year-on-year, in line with market consensus.

Based on Citi’s forecasts, domestic demand, excluding investment, would continue to lead the upbeat momentum although spending catalysts were seen to ease off in the second half of this year as part of the transition “costs.”

“We continue to expect fiscal spending particularly in the third quarter to trough post-elections with public construction being most affected. The new administration of [incoming] President Rodrigo Duterte would take time to organize itself, get accustomed to the bureaucracy (although most of the Cabinet appointees have had previous government experience) and review/decide on which among the projects and programs in the approved 2016 national budget would be sustained,” Trinidad said.

He said the private sector was expecting Duterte’s policy agenda to be formally communicated in late July, when Duterte would first address the nation and to convene the 17th Congress.

“We factored in a lagged private investment response to Duterte’s agenda and as such ongoing investment projects in power, road vehicles and telecoms would probably carry much of the investment load. The ‘wait-and-see’ period could result in investment in durable equipment falling to single-digit rates alongside slower construction activity as public construction shifts to a low gear with the government in transition,” Trinidad said.

The economist said growth momentum in the Philippines could easily shift from being an investment-driven one to another supported by consumption. The pace of consumption, he said, may linger in the 6-6.5 percent range over the next three quarters owing to upbeat buying power of the remittances, demand lift from sustained business process outsourcing activities, benign inflation outlook, and strong consumer sentiment.