DoF: Economy now ‘more investment-led’

Investments have become a bigger contributor to economic growth based on three major indicators, the Finance department said on Monday.

“The Philippine economy has become more investment-led,” the department claimed in its latest economic bulletin

In particular, it said that capital formation as a percentage of gross domestic product (GDP) had risen to 27.4 percent in the first half of 2018, up from 25.4 percent a year earlier.

Emphasizing that capital formation is the “most comprehensive measure of investment,” it added that the indicator was also “one of the foremost determinants of future growth, in addition to employment and factor productivity.”

Capital formation has also surged compared to real GDP growth in the first half, the department stressed.
“Capital formation … shows a real growth of 9.4 percent in 2017 and 16.4 percent during the first half of
2018.  These growth rates are higher than real GDP growth of 6.7 percent and 6.3 percent, respectively,” it said.
Foreign direct investment (FDI) and “hot money” gains, meanwhile, also point to a thriving economy.

Net FDI inflows rose by 48.9 percent to $4.846 billion in the first five months of 2018, the Finance department said, contributing 3.7 percent to GDP — an improvement from the 2.6 percent recorded a year earlier.

“Hot money” or foreign portfolio investments, meanwhile, had shown “significant variability” by contracting in 2016 and then rising to $559.7 billion during the first seven months of 2018.

As a percentage of GDP, the ratio rose from 0.2 percent in 2017 to 0.4 percent in 2018, the department noted.

“FDI is the more important indicator because it measures the amount of investment through controlling ownership in a business by foreign investors which implies more active participation and more commitment … in business policies and management,” it claimed.

Lastly, the DoF said the third measure pointing to an increasingly investment-led growth was that of Trade department-approved investments, which fell by 5.3 percent to P291.97 billion in the first half.

“The lower ratio implies that investors are applying less for fiscal incentives and are attracted more by the country’s improving macroeconomic fundamentals,” it pointed out.

Earlier, Finance Undersecretary Gil Beltran said this year’s economic growth target could still be achieved if capital formation substantially picks up in the second semester.

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