MANILA, Philippines – US investment bank Citigroup has upgraded the country’s growth forecast this year after the Philippines posted its strongest economic growth in 34 years last year.
Citigroup economist Jun Trinidad said in its Asia Macro and Strategy Outlook entitled “Can Asia Avoid a Hard Landing” that it expects the country’s GDP to expand by 5.5 percent instead of 5.2 percent this year after posting a surprising growth of 7.3 percent last year.
The country’s GDP growth last year was the fastest since the time of the late strongman Ferdinand Marcos in 1976. The Philippines barely escaped recession after its GDP growth slackened to 1.1 percent in 2009 from 3.8 percent in 2008 due to the full impact of the global financial crisis.
“We have upgraded fiscal year 2011 estimated GDP to 5.5 percent. Downside risks reduce the potential for a repeat of fiscal year 2010 growth of 7.3 percent,” Trinidad stressed.
Despite the upgrade, the GDP growth forecast of Citigroup is slower than the GDP growth target of seven percent to eight percent set by the Cabinet-level Development Budget Coordination Committee (DBCC) for this year.
Last year, the actual GDP growth was faster than the revised GDP growth target of five percent to six percent set by the DBCC. Originally, economic managers were looking at a growth of between 2.6 percent and 3.6 percent for 2010.
The projected GDP growth for the Philippines this year would be faster than Taiwan’s 4.5 percent and Thailand’s 4.2 percent but slower than Indonesia’s 6.5 percent and Malaysia’s 5.7 percent. Singapore is expected to post a GDP growth of 5.5 percent this year.
The investment bank said the lower growth target for the year could be traced to the possible delay in the bidding of some projects in the public-private partnership (PPP) program of the Aquino administration as well as the build up in inflation pressures arising from higher global oil and food prices.
He also cited slower intra-Asian trade as well as the risks in the Middle East and North America on overseas Filipino workers’ (OFW) remittances.
Trinidad pointed out that rising inflation would erode the purchasing power of beneficiaries of OFW remittances.
Citigroup also raised the country’s average inflation forecast to 4.2 percent instead of 4.1 percent this year but lowered next year’s forecast to 4.9 percent instead of five percent.
The Bangko Sentral ng Pilipinas (BSP) has set an inflation target of three percent to five percent between 2011 and 2014. It has upgraded its inflation forecast to 4.4 percent instead of 3.6 percent this year and to 3.5 percent instead of three percent next year due to rising oil and food prices.
Benign inflation outlook has allowed monetary authorities to keep its key interest rates at record lows for 14 straight policy setting meetings since July 2009. The BSP’s Monetary Board slashed its key policy rates by 200 basis points between December 2008 and July 2009 to cushion the impact of the global financial crisis on the domestic economy.
Citigroup sees the BSP’s Monetary Board raising policy rates as early as March 24 but not later than May 5.
“Recent hawkish rhetoric of the Monetary Board in its recent scheduled policy rate meeting suggests that overnight rate normalization may start as early as in the next meeting on March 24 but no later than the scheduled May 5 meeting when the inflation readings should unambiguously suggest a 12-month trajectory falling into the BSP’s target range of four percent to five percent,” Trinidad stressed. –Lawrence Agcaoili (The Philippine Star)
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