American banking giant Citigroup has raised its outlook on the Philippine economy for this year and 2009 as a more aggressive government pump-priming is expected to compensate for the slack in the export sector.
In a commentary dated Nov. 27, the Citi economist for the Philippines, Jun Trinidad, upgraded the bank?s gross domestic product (GDP) growth forecast for this year to 4.3 percent from 4.1 percent even as he affirmed a bearish outlook for the fourth quarter.
For next year, Trinidad raised the GDP growth forecast to 3.0 percent from an earlier projection of 2.7 percent.
?Fiscal spending was key to the favorable upgrade,? he said. ?While we anticipated upbeat government spending on the back of over 20-percent growth in non-interest fiscal spending gleaned from the government?s cash budget report, we underestimated the robust quality of fiscal spending.?
He said the fiscal spending bias was likely to extend to 2009 amid the exceptionally weak global environment.
?In 2010, election spending in the first half, improving consumption?and moderate recovery in external demand that would elevate export prospects?could support GDP growth of 4.6 percent,? he said.
For the fourth quarter of this year through 2009, Trinidad said stalled investments in durable goods, given declining electronics and garment exports, would not help shield the domestic economy from the impact of a global recession.
In the third quarter, government consumption expanded by 12.5 percent largely due to increased spending by the government on maintenance and operating expenditures. This was after the fiscal budget implementation for 2008 was delayed, allowing actual spending to begin only in the third quarter.
Trinidad also took note of the 20-percent expansion in public construction in the third quarter as the government reported increased capital outlays for priority infrastructure projects.
He added that private construction also remained fairly upbeat, posting a growth of 13.8 percent in the quarter on improved residential and nonresidential construction demand.
Meanwhile, he said an improved consumption on the back of overseas Filipino remittance flows had complemented fiscal spending in shoring up domestic demand.
Non-farm output also fueled a 7.1-percent year-on-year rise in industrial GDP, outdoing the farm output?s growth of 2.5 percent in the third quarter, he said.
?Influence of upbeat fiscal spending, particularly public construction, underpinned strong industrial output,? he said.