Citi hikes Phl growth forecast

MANILA, Philippines - American financial giant Citigroup has upgraded its 2014 economic growth forecast for the Philippines due to post-typhoon rehabilitation efforts which can spur public and private spending early next year.

In a report titled Pan-Asia Road Ahead: 2014 Outlook, Citi said the country’s economy would grow 7.3 percent next year, an upward revision from an earlier target of 6.9 percent.

“The devastation wrought by Typhoon Yolanda may slow fourth quarter 2013 GDP growth, but the rebuilding efforts could prompt a sharp recovery in first quarter of 2014,” Citi said.

The forecast is near the higher end of government’s 6.5-to 7.5-percent target for 2014. This was also an improvement from Citi’s 2013 economic growth forecast of 6.5 percent, a downgrade from an earlier outlook of 7.3 percent.

The Philippine economy expanded by 7.4 percent in the nine months to September, still faster than government’s six-to seven-percent target this year. However, the government foresees a sharp decline in the pace of growth for the fourth quarter following the devastation brought by Super Typhoon Yolanda.

The typhoon, which ravaged central Philippines in November, has killed more than 5,700 and destroyed over P35 billion worth of infrastructure and agriculture, based on latest government estimates.

At the same time, Citi expects the rise in domestic prices to stay within the central bank’s three-to five-percent target range.

“Inflation should stay within an acceptable range of four to five percent; hence, we expect a gradual 50bps (basis points) policy rate hike in 2H14 (second half of 2014),” Citi said.

The Bangko Sentral ng Pilipinas expects inflation to average four percent next year, at the mid-point of the target range.

The rate has so far averaged 2.8 percent this year, below the central bank’s three to five percent target range.

The benign inflation and the country’s robust economic growth has allowed the central bank to keep policy rates steady since the start of the year.

“Aside from the reconstruction theme, we see deployment of excess liquidity and gradually rising rates as key drivers of the market,” Citi noted.