MANILA, Philippines – Citigroup Global Markets Inc. has lowered its gross domestic product (GDP) 2009 growth forecast for the Philippines to one percent from a previous forecast of three percent following a higher budget deficit ceiling and a downward revision in the government’s GDP growth projection.
Citigroup believes that consumption spending will pick-up, albeit moderately, in the latter part of the year.
“We revise our GDP forecast to one percent in fiscal year 2009, within the government’s updated GDP forecast range of 0.8 percent to 1.8 percent. We continue to believe the normalization of the consumption-savings preference would augur well for moderate consumption gains in the succeeding quarter,” Citigroup said in its latest report on the Philippines.
The Development Budget Coordination Committee (DBCC), the interagency group that sets the country’s macroeconomic assumptions, revised downward the economic growth forecast for the year to a range of between 0.8 percent and 1.8 percent from between 3.1 percent and 4.1 percent previously.
This followed a higher deficit ceiling of P250 billion or 3.2 percent of GDP from P199.2 billion or 2.5 percent of GDP.
Although it lowered its economic growth projection for the Philippines, Citigroup believes the there would still be growth unlike the International Monetary Fund (IMF) which expects the economy to contract by one percent this year.
However, the Citigroup believes that for this to happen, the government stimulus package should take effect.
“The fiscal spending trigger would be essential for this to happen. Having the fiscal spending catalyst to fend off recession risk was the policy choice at the expense of a larger fiscal deficit target,” Citigroup said.
It said that the economy should already feel the full impact of the 2009 budget in the remaining part of the year.
“The key channel would be government consumption expenditures with its higher share of GDP (6.6 percent of GDP) rather than public construction (3.4 percent of GDP),” it said.