MANY were disappointed that the Philippines appeared to have stepped on the brakes after the economy grew at a slower pace of six percent in the second quarter of 2018, from 6.6 percent in the first quarter.
Some economists and stock-market investors were quick to surmise that the economy was slowing down. I disagree. The country’s economic fundamentals, as I have written in this column before, remain solid. The 6-percent gross domestic product growth in the second quarter is not bad at all. It still made the Philippines one of the best-performing economies in Asia, next to Vietnam’s 6.8-percent growth and China’s 6.7 percent.
The inflation rate may have topped 5 percent in July but that is not so alarming considering that surging prices are being caused temporarily by the supply side, which can be remedied by imports, especially rice. The Bangko Sentral ng Pilipinas (BSP) has responded by increasing its interest rates by 50 basis points to rein in the second-round effects of inflation after electricity and oil prices rose.
The economy, I believe, will remain buoyant in the last two quarters of 2018. Direct foreign investments, or those invested in capital equipment, will translate into increased production toward the end of the year. Finance Undersecretary Gil Beltran, the chief economist of the Department of Finance, was quoted as saying that a 30-percent to 40-percent increase in capital formation in the third and fourth quarters would put the economy on track.
Achieving the economic growth target of 7 percent to eight percent this year may be difficult, but if the GDP does not expand within this range or settles just above six percent, it is still okay. Strong economic fundamentals are still there to support the growth trajectory.
The Philippines remains attractive to foreign investors. Net inflows of foreign direct investments in May, according to the data of the BSP, jumped 143 percent to $1.6 billion, from $677 million a year ago, reflecting investors’ confidence in the Philippine economy. Net equity capital investments increased over five times to $241 million, from $43 million during the same month last year. Equity capital placements amounted to $257 million, while withdrawals continued to be low at $15 million.
The equity capital placements came primarily from Singapore, the United Kingdom, Germany, the United States and Japan. Per BSP data, these were channeled largely to manufacturing; real estate; electricity, gas, steam and air-conditioning supply; financial and insurance; and professional, scientific and technical activities.
FDI net inflows, meanwhile, rose 49 percent to $4.8 billion in the first five months from $3.3 billion in the same period last year. The rising foreign direct investments in the country, partly attributed to the Duterte administration’s effective campaign against corruption and criminality, will soon translate into increased jobs and economic production.
Beltran saw a “silver lining” in the growth performance of the Philippines — capital formation. He said the country in the future quarters will perform better because once the factories and the machines that were purchased in the second quarter become operational, growth will accelerate.
BSP Governor Nestor A. Espenilla Jr. is equally upbeat despite the slowdown in the GDP growth in the second quarter, saying the Philippine economy is resilient mainly because of its sound macroeconomic
fundamentals.
“We’re growing strongly. [We have] strong growth drivers. Fiscal position is in order. The external position — despite the deficit — is moderate and our indebtedness is low. So we’re in a strong fundamental position,” Espenilla said at the sidelines of an event at the BSP last week.
The exchange rate, although weak, remains dynamic and attractive to our overseas Filipino workers. Total personal remittances in the first five months hit $13.172 billion, up 4.4 percent, from $12.613 billion in the same period last year. The gross international reserves, meanwhile, are still near the $80-billion level.
So let’s relax. The economy is still expanding and there’s no reason to be alarmed.
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This piece first came out in Business Mirror on Aug. 20, 2018 under the column “The Entrepreneur.” For comments/feedback e-mail to: mbv.secretariat@gmail.com or visitwww.mannyvillar.com.ph./PN
