Citi cuts Phl GDP growth forecast for 2011, 2012

MANILA, Philippines – US-based investment bank Citigroup downgraded anew its economic growth forecasts for the Philippines this year and next year on the back of fiscal underspending, weak external demand, supply chain disruption as well as the global fiscal storm brought about by the debt crisis in the US and Europe.

In a latest Asia Macro and Strategy Outlook, Citigroup economist Jun Trinidad said the bank has lowered its gross domestic product (GDP) growth forecast for the Philippines to 3.7 percent from the original 3.9 percent this year and to 3.9 percent instead of 4.6 percent next year.

“We further revise our GDP forecasts to 3.7 percent in fiscal year 2011 and 3.9 percent in fiscal year 2012, on the back of the Global headwinds, coupled with the low second quarter GDP base on the back of supply disruption risk and weak electronics demand,” Trinidad said.

He pointed out that fiscal contraction in most developed economies that could translate into slower spending in the second semester bodes ill for the global trading environment.

However, he explained that strong domestic demand in emerging market economies in Asia would enable intra-Asian demand to cushion downside export risk and prevent a repeat of the global trade crunch in the fourth quarter of 2008.

Trinidad added that the worst period for exports and imports would be in the third quarter as supply disruption risk and lackluster demand leveled export growth in the second quarter.

The economist said Citigroup sees government consumption expanding by 5.6 percent year-on-year in the second half of the year after contracting by six percent in the first half of the year.

“Upside to GDP growth in second half of the year would come mainly from fiscal spending as the infrastructure budget is decompressed, alongside increased welfare spending led by conditional cash transfers,” Trinidad said.

According to him, a caveat in Citigroup’s sober baseline GDP scenario would be an upside fiscal spending surprise as the Aquino administration exhausts the unutilized P189 billion of the non-interest program expenditures as of August for the remaining four months.

“Higher-than-expected fiscal expenditures for the rest of the year would also shield consumer sentiment from the global fiscal storm, its job erosion threat and financial tightening effects,” Trinidad explained.

Meanwhile, Citigroup also lowered its inflation forecast to 4.3 percent instead of 4.5 percent this year and to 3.5 percent instead of 3.7 percent next year or well within the target of three percent to five percent set by the Bangko Sentral ng Pilipinas (BSP).

“Despite monetary and fiscal flexibility, consumption is dependent on sentiment holding up as inflation expectations recede,” Trinidad said.

Consumer prices eased to a four-month low of 4.3 percent in August from 4.6 percent in July. Inflation averaged 4.3 percent in the eight months of the year from 4.2 percent in the same period last year. –Lawrence Agcaoili (The Philippine Star)