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By Melissa Luz T. Lopez, Reporter

Citi raises PH growth forecast for 2016-17

Posted on January 30, 2016

THE faster-than-expected growth seen in the fourth quarter of 2015 has prompted Citi Research to raise its forecast for the next two years, it said in a new report, but flagged a slowdown in investments by the second half of 2016 after the May national elections.

In a Jan. 28 report titled “Philippines Economic View: Investment-driven 4Q15 Growth: Last Hurrah?,” Citi economist Jun Trinidad said the 6.3% expansion in the previous quarter makes for a better springboard to buoy the economy towards sustained growth for 2016.

“We raise our 2016-17 GDP (gross domestic product) forecasts to 5.4% (previously 5.1%) and 6%, respectively,” the report read, citing the “investment-driven” growth seen in the fourth quarter which was announced by the government on Thursday.

The Philippine Statistics Authority reported fourth quarter growth at 6.3%, the fastest rate for the year, which brought the full-year average to 5.8%, but slower than 2014’s 6.1% and still short of the government’s 7%-8% target range.

Citi Research forecasts first quarter growth to pick up further to 7.4%, but warns of slower growth by the second half of the year as investors adopt a wait-and-see approach to the new administration which takes over in July, and largely constrained by continued weakness in exports.

”Amid the global economic slowdown and market volatility, the post-election investment momentum should slow down,” the report stated. “Learning curve effect as the new government takes over weighs on fiscal spending while the business community awaits the new policy agenda.”

The presidential elections are set on May 9, with the oath-taking for the new President on June 30.

Private consumption is expected to drive the continued pickup in GDP growth, with investments seen to moderate in the next few months.

“From 1Q16 growth of 7.4% year-on-year, we expect domestic demand to ease to sub-5% year-on-year in 4Q but with consumption in the driver seat. Lacking meaningful 2016 export gains restrain prospects. Investments’ share of GDP should ease to 23% with contribution from ongoing PPP projects and other energy, infra and real estate projects,” the report also read.

Amid market volatilities seen throughout the year, a better performance is expected by 2017 with the economy likely to return to its average growth pace.

“Uncertainty tapering off in 2017 likely enables GDP to resume its historical pace of 6%,” Mr. Trinidad said.

In a separate report, analysts from Nomura bank said the fourth-quarter print was in keeping with their forecast growth rates, and is well on-track to meet the bank’s projection for 2016.

The economists added that the elections would stimulate -- rather than dampen -- growth prospects for the year.

“For 2016, we reiterate our GDP growth forecast of 6.5%, which reflects our view that the elections in May 2016 will likely further boost already healthy domestic demand, rather than act as a headwind,” Nomura analysts Euben Paracuelles and Lavanya Venkateswaran said in a report.

“We expect more fiscal support to growth from further progress on the implementation of infrastructure projects, which should also crowd in private investment and FDI (foreign direct investments).”