Economic growth may not settle within gov’t target – GlobalSource

MANILA, Philippines - Philippine economic expansion may not settle within the government’s 6.5 percent to 7.5 percent target this year, GlobalSource Partners said, amid a lack of new growth drivers.

“All told, the better-than-expected fourth quarter performance brought full year GDP (gross domestic product) growth to 7.2 percent, our pre-typhoon forecast,” Romeo Bernardo, analyst at the New York-based think tank said in a research note.

“Despite this, we remain less confident than other analysts that increased government spending for post-disaster reconstruction will bring 2014 growth above 6.5 percent, especially given its poor spending record recently,” he continued.

Bernardo said there are no expected growth drivers this year, especially as foreign investors flee emerging markets in part because of the prospect of less US monetary stimulus.

“Aside from the start of construction of a couple of PPP (public-private partnership) tollroads, we have yet to be convinced that there are new growth drivers in the horizon, particularly FDI (foreign direct investments),” Bernardo said.

“At the moment, we see increased risk of tighter domestic financial conditions as capital outflows increase which may dent consumer and business confidence,” he added.

The central bank expects foreign direct investments reaching $2.6 billion this year, higher than projected $2.1 billion in 2013. Latest data showed foreign direct investments amounted to $3.361 billion as of October last year.

However, foreign portfolio investments are expected to fall to $2.1 billion this year from a net inflow of $4.2 billion in 2013 as volatility remain in global financial markets following the US Federal Reserve’s scaling back of monthly asset purchases.

“Additionally, we are hearing anecdotal accounts of reduced retail sales as consumers cut back spending on expectations of higher electricity bills ahead,” Bernardo said.

Manila Electric Co. (Meralco) in December announced a record-high P4.15 per kilowatt-hour rate hike but the plan has been put on hold by a temporary restraining order from the Supreme Court.

Of the total power rate hike, P2.41/kWh was planned for December, P1.21/kWh for February, and P0.53/kWh for March.

Meanwhile, inflation this year is seen to rise to 4.5 percent, near the upper-end of the central bank’s three to five percent target range.