Citi cuts RP growth forecast to 1.4% due to supply shocks

MANILA, Philippines – American banking giant Citigroup has scaled down its outlook on Philippine growth this year due to supply shocks caused by tropical storm Ondoy and typhoon Pepeng.

Jun Trinidad, Citi economist for the Philippines and Thailand, said in its Emerging Markets Daily Asia Edition that the country’s domestic output as measured by the gross domestic product (GDP) is likely to grow by only 1.4 percent instead of 1.9 percent this year from 3.8 percent last year.

Trinidad said the country’s GDP expansion in the fourth quarter would slow down to 1.2 percent instead of the previous forecast of three percent due to the impact of the recent calamities. It expects GDP to grow 2.3 percent in the third quarter.

“This would leave GDP growth of 1.4 percent in fiscal year 2009, down from our previous estimate of 1.9 percent in a scenario free of typhoon shocks,” he stressed.

The GDP growth forecast of Citi was well within the projected growth of between 0.8 percent and 1.9 percent set by economic managers through the Cabinet-level Development Budget Coordination Committee (DBCC).

According to him, opportunity losses from Metro Manila’s flash floods and damage to farmlands and infrastructure in Northern Luzon could rise up to P38 billion that would start to manifest in the fourth quarter.

He pointed out that demand adjustments to supply shocks caused by recent calamities would lower consumption despite higher remittances by overseas Filipino workers (OFWs) in the last quarter.

He explained that private consumption is set to expand by one percent instead of 2.7 percent in the fourth quarter amid higher OFW remittances and robust retail spending.

“We assume as well that remittances during the quarter of P201 billion coupled with private wealth/savings drawdown would absorb much of the supply shocks as these resources would be used to finance household repair and construction as well as replacement of damaged furnishings and fixtures,” Trinidad said.

The economist said inflation would remain subdued in October and the rest of the last quarter as price shocks would be concentrated in rice, fruits, and vegetables which are not part of the core basket given their volatile prices.

He added that additional government spending amounting to P12 billion to prioritize disaster relief and infrastructure repair would help mute the downside risk to consumption and inventory.

The economist said the GDP growth downgrade in the fourth quarter could bring about a potential P5.5 billion in additional fiscal deficit this year.

The Philippines is staring at a record budget shortfall of P250 billion or 3.2 percent of GDP this year from P68.1 billion or 0.9 percent of GDP last year due to the full impact of the global economic meltdown. This would eclipse the previous record of P210.7 billion or 5.3 percent incurred in 2002.–Lawrence Agcaoili (The Philippine Star)