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INTERNATIONAL banking giant Citibank joined the many
financial institutions and economists that have
predicted lower growth for the Philippines this year and
in the case of the bank, it downgraded its previous
forecast of 6 percent to 5.6 percent owing to the
reduction in exports.
Francisco Trinidad Jr., Citibank currency and
interest-rate strategist for the Philippines and
Thailand, said this is because the bank sees a
zero-percent growth in exports this year.
“[The
slowdown will be caused by a] lackluster net export
growth [this year]. Prior to the downgrade, we were not
expecting rice prices to increase steeply,” said
Trinidad at the bank’s economic briefing on Monday.
The bank
said, however, there would be a slight economic recovery
to 6.6 percent in 2009.
Trinidad
said that while domestic demand “will not vanish,” it
will most likely be affected by high commodity prices.
Households will opt to spend more for food and basic
necessities but will slow down consumption for durable
goods.
Trinidad
said that apart from these, low private
investments—caused by tightening credit, widening
spreads, and longer-term borrowing—will not help boost
economic growth. He said these factors will signal lower
foreign direct investments (FDIs) not only in the
country but across the region.
Citibank
market-analysis managing director Don Hanna said that
among the reasons for the unusual spike in prices,
particularly for rice, is the announcement of countries
that they will no longer sell rice.
Another
reason is the shift in the kind of crops grown. He said
that while planting corn may increase the supply of
biofuels, this greatly diminishes the supply of wheat.
The bank
projected headline inflation to be pegged at 6 percent
in 2008, higher than the Development Budget Coordination
Committee (DBCC) projection of 3 percent to 5 percent.
Inflation is seen to slow down to around 3.5 percent in
2009. The bank does not see any increase in wages and
rice subsidies affecting inflation in the near term.
Trinidad said that based on previous years, wage
increases have only been pegged at less than 1 percent
of gross domestic product (GDP) and do not have that
much bearing on the country’s finances.
On rice
subsidies, Trinidad said that while higher subsidies may
be considered off-budget by the National Food Authority
(NFA), these also only account for less than 1 percent
of GDP.
However,
he cautioned that, at some point, there has to be
something done about subsidies. Trinidad said
adjustments are needed and the issue must be addressed
over time.
Citibank
country officer Sanjiv Vohra said the growth drivers, at
least for this year, will still be on the consumption
side. He described consumption in the country as still
underpenetrated, presenting a “very good opportunity for
banks.”
Hanna
added the bank this year is focusing its attention on
three key points—the health of the global environment,
the fact that emerging markets are showing greater
resiliency to external shocks, and the importance of
macroeconomic.
He said
tight credit is already a fact in the United States,
Britain and Europe, and may extend to next year despite
a better
US
economy being seen possibly by the third quarter of
2008.
In terms
of macroeconomic policies, Hanna said relying on which
kind of economic environment a country has should be the
stimulus of good policies. In the Philippines the
central bank cannot loosen its monetary policy that is
preventing a further spike in inflation, but in other
countries where inflation is in check but growth is not
good, loosening monetary policy is necessary, he said.
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