Citi sees economy growing 3.7% this year, 4.5% in ’11

The Citigroup sees the Philippine economy growing 3.7 percent this year, driven mainly by election spending, higher exports growth and inventory restocking.

Citi analyst Jun Trinidad said in a study released Monday that the economy would expand further by 4.5 percent in 2011 with the prospect of a shift to investment-driven growth over the medium-term period.

Trinidad warned that election uncertainty could put new projects on hold but said the postponement and other related activities would drive the recovery in investments assuming the elections were orderly and the new administration was reform-oriented.

“A reform-oriented administration that values good governance and macro reforms would be key to a period of transition to investment-led growth over the next six years. The fresh mandate would be an excellent opportunity to pursue reforms across a broad front without neglecting the need to shore up fiscal revenues in support of higher public investments,” Trinidad said.

The Citi study expects real investments to rise 4.3 percent in 2011—the first time that it will register positive growth since the global financial crunch of 2008.

“[The] likelihood of double-digit investment growth need not be a pipe dream if the policy conditions, including the governance agenda of the new administration, would sow the seeds of investor confidence while appealing to new FDI [foreign direct investments],” Trinidad said.

The study said multilateral credit institutions would be inclined to support a reform-oriented agenda that would complement and even strengthen poverty alleviating measures and social safety nets.

“Policy reforms that would prioritize liberalization of the services sector and thus generate competition could help inject new investments and technology to upgrade existing industries and encourage the development of new ones. The resurgence of the BPO [business process outsourcing] industry comes to mind,” Trinidad said.

Citi expects investments this year to remain a drag on growth prospects despite a possible upside risk to marginal construction.

“Investment-driven growth would be key to breaking the curse of jobless growth. Lackluster and poor quality job creation alongside double-digit underemployment rates under consumer-driven growth characterized the macro upturn since the 1997-98 Asian financial crisis. Limited onshore job markets drove highly qualified Filipinos to seek overseas jobs and/or migrate abroad with their families, in the hopes of earning better wages to support family members left behind,” Trinidad said. Trinidad said the transition to investment-led growth would begin in 2011 if the May elections were orderly and there were no worst-case scenarios of technical glitches that would delay the proclamation of the new president and vice president and if the new administration prioritized good governance and macro reforms.

Trinidad warned that another six years of consumer-driven growth with remittances as the key condition would not break the curse of the jobless growth. –Eileen A. Mencias, Manila Standard Today