Resilient Economy Seen Growing Stronger
The global financial markets this early are showing signs of volatility. The budget impasse in the US, Wall Street’s recent deep plunge and the unresolved trade war between the US and China are again rattling the nerves of investors. The same gyrations in the global financial markets are happening again this year, but I see the Philippines surviving this instability as it did in 2018.
Latest economic data and solid fundamentals support my belief that the economy will continue to be strong this year. The government has tamed the inflation rate, and prices will likely decelerate further in 2019, with rice tariffication addressing the supply-side problem.
I say this with confidence given the declining oil prices in the world market. The US benchmark West Texas Intermediate has fallen to near $40 a barrel on Christmas day, from almost $70 just a few months ago. This development will translate into a lower cost of manufactured goods through decreased shipping costs and reduced transportation fares. Lower oil prices will also ease the pressure on the peso, considering that the Philippines imports nearly 100 percent of its crude requirements from abroad.
Another welcome economic data is the record investment pledges registered by the Board of Investments, which reached P907.2 billion in 2018, up 47 percent from the previous all-time high of P616.8 billion in 2017. Trade Secretary and BOI Chairman Ramon M. Lopez were pleased to report that the investment figure was the highest in the agency’s 51-year history, besting the old record in 2017.
The BOI’s figure does not represent actual investments because these are pledges of capital that will be infused later into the economy. Nonetheless, the projects approved with fiscal incentives by the BOI will be constructed in phases and shortly generate jobs in
several sectors of the economy.
Investment commitments in the manufacturing sector in 2018, according to the BOI data, rose more than fourfold to P409.3 billion, from P96 billion in 2017. Those pledged in the transportation and storage sector surged 626 percent to P129.6 billion, from just P17.8 billion in 2017, while investments in the water and sewerage sector jumped 1,494 percent to P14.3 billion, from P894.4 million a year ago.
The investment data also show the dispersal of capital to the regions, with most projects outside Metro Manila and total regional investments accounting for 86 percent of the total figure. This investor preference supports President Rodrigo Duterte’s inclusive economy.
Region 10 (Northern Mindanao) led local investments with P228.8 billion, up by over 3,000 percent from P7.2 billion a year ago, and accounting for a quarter of the total figure. In second place was Region 4 (Calabarzon) with P185 billion, while Region 3 (Central Luzon) placed third with P169.3 billion.
What happened in 2018 showed the resilience of the Philippine economy amid all the external challenges. Although the inflation rate, or the movement in consumer prices, hit a nine-year high of 6.7 percent in October, it eventually softened to 6 percent in November, with all indications pointing toward further deceleration in the coming months.
I expect the Philippine economy to display the same resiliency in 2019. Our economic fundamentals are strong as shown by our healthy international reserves, a decelerating inflation rate and record net inflow of direct investments that could reach $10.4 billion last year. FDI net inflows in the first three quarters of 2018 already climbed 24 percent to $8 billion, from $6.5 billion a year ago, as investors continued to consider the Philippines as one of the best investment places.
The government has also managed its debt well. The total debt of the Philippines stood at 42.3 percent of the gross domestic product as of September 2018, or well within the acceptable standards of 60 percent of the GDP.
And with the Duterte administration expected to go full blast this year on the “Build, Build, Build” infrastructure program, I don’t see any reason the economy should not expand faster.