In last week’s column I said 2016 was a good start for the Philippine economy. Growth accelerated from 6.3 percent in the fourth quarter of 2015 to 6.8 percent in the first quarter of 2016 to 7.0 percent in the second quarter, for an average growth of 6.9 percent for the first half in terms of gross domestic product (GDP).
For the whole year, a 6.5-percent growth should not be too difficult to achieve, because the country’s growth drivers remain strong, such as remittances from overseas Filipinos, the business-process outsourcing industry, tourism industry, as well as the low-inflation and low-interest environment.
We had also posted growth rates of higher than 7 percent in the past, but much of that has been attributed to consumer spending instead of investments, which are what we need to generate long-term employment.
Beyond the higher GDP numbers, I am pleased to note that investments are gaining a bigger share in the country’s economic gains. As early as 2014, Standard Chartered Bank noted in a published report that investment growth contributed 1.5 percentage point to GDP growth during a seven-quarter period, and emerged as a secondary growth driver for the Philippines.
The Philippines, according to the bank, would benefit from the movement of foreign investors from China, where labor costs are rising, to lower labor-cost countries in Southeast Asia, including the Philippines.
During a press briefing in July, First Metro Investment Corp. also said private investment would be an additional growth engine for the economy.
We are seeing a good inflow of foreign direct investments (FDI), which are used to build or expand factories and other industries. Based on the latest report from the Bangko Sentral ng Pilipinas (BSP), net inflows of FDI totaled $3.9 billion for the first five months of 2016, more than double the $1.6 billion registered in the same period last year.
The amount includes $1.4 billion in net equity capital (more than threefold higher than the $440
million received last year), which were channeled mainly to manufacturing, real estate, wholesale and retail trade, and electricity, gas, steam and air-conditioning activities.
Investments in factories and other long-term economic activities are measured in terms of fixed capital formation, which refers to the construction or expansion of factories, purchase of transport equipment, tools, machinery for production and office equipment.
During the second quarter of 2016, investments in fixed capital formation increased by 27.2 percent compared to 12.7 percent in the same quarter last year, according to the Philippine Statistics Authority (PSA).
Investments in capital formation for durable equipment increased to its highest growth of 42.8 percent in the second quarter of 2016, compared with 13.8 percent last year.
In its report on the economy for the second quarter of 2016, the PSA noted that increased investments were registered in 18 out of 20 types of fixed-asset investments.
These include road vehicles, 65.0 percent from 15.2 percent last year; other electrical machinery and apparatus, 51.3 percent from negative 0.2 percent; metal working machineries, 379.1 percent from negative 16.5 percent; other miscellaneous durable equipment, 28.6 percent from 9.5 percent; and other special industrial machineries, 31.3 percent from 20.2 percent.
Investments posted the highest contribution to GDP growth in the second quarter of 2016 at 5.8 percent, compared with 1.6 percent from government consumption and 4.9 percent from household consumption.
The contribution from investments consisted of 5.7 percent from fixed capital formation and 0.1 percent from change in inventories. Contribution from net exports was at a negative 6.5 percent.
Accelerating growth should be a continuing pursuit, but increasing the share of investment, which is the key to spreading the benefits of economic gains to all sectors of the population, should be an
accompanying goal.
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