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Citi, Nomura cut Philippine GDP growth forecasts
MANILA, Philippines — Global banking giant Citi and Japan’s Nomura slashed their gross domestic product (GDP) growth forecasts for the Philippines as soaring global oil prices from Russia’s invasion of Ukraine may dampen consumption.
Nalin Tutchotitham, economist for the Philippines at Citi, said the GDP growth, current account balance and inflation forecasts for the Philippines were adjusted downward due to higher energy prices.
Tutchotitham said Citi now expects the Philippines’ 2022 GDP to expand by 6.5 percent, lower than the original target of 6.8 percent. The figure was also lower than the seven to nine percent range penned by the Cabinet-level Development Budget Coordination Committee (DBCC).
“Given higher energy price expectations, we lower our 2022 GDP growth forecast to 6.5 percent from 6.8 percent,” Tutchotitham said.
Tutchotitham said higher energy costs would weigh on domestic consumption.
Citi sees continued domestic demand recovery as the government has further relaxed the country’s mobility restrictions by bringing most areas under COVID-19 Alert Level 1.
“However, recent increases in commodity prices, especially energy, will still weigh on consumer confidence and household consumption, especially with a lack of energy subsidies at this juncture and weak income growth,” Tutchotitham said.
Citi’s Commodities team revised upward its Brent crude price forecast for this year to $91 per barrel from $79 per barrel.
According to Citi, oil prices are expected to rise to an average of $102 in the second quarter, before declining to an average of $79 in the fourth and finally to $59 in 2023.
As such, Citi is now expecting a wider current account deficit of 1.2 percent instead of 0.9 percent of GDP, as higher energy imports are partly offset by growing income and services inflows.
Citi also raised its inflation forecast to 3.5 percent from the previous forecast of 3.2 percent for this year and expects the Bangko Sentral ng Pilipinas (BSP) to reverse into tightening mode via a rate hike in the fourth quarter to support economic recovery.
“So far, however, the market’s inflation expectations remain at manageable levels. Hence, we still expect the BSP to hike its policy rate by 25 basis points only in the fourth quarter, given the need to support economic growth, remaining negative output gap and labor market slack,” Tutchotitham said.
On the other hand, Nomura also downgraded its GDP growth forecast for the Philippines to 6.3 instead of 6.8 percent this year as surging inflation is seen dampening private consumption.
“Surging inflation is also likely to dampen consumer spending when the unemployment rate is still high,” Nomura said in a report.
Nomura said base effect from high food prices last year continues to keep inflation muted at three percent in the first two months, well within the BSP’s two to four percent target.
BSP Governor Benjamin Diokno earlier said inflation would breach the central bank’s target bank and accelerate to 4.4 percent and 4.7 percent if the price of Dubai crude averages $120 to $140 per barrel.
Source: https://www.philstar.com/business/2022/03/23/2169168/citi-nomura-cut-philippine-gdp-growth-forecasts