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Philippine growth story continues to attract investors

Allan Tripon |

Backed by a historically strong domestic consumption and increasing levels of both private and government investments, the Philippine economy has consistently outperformed its regional peers over the past five to ten years — growing at an impressive average rate of more than 6% annually. For comparison, most economies in the world have only been growing at less than 3% during the same timeframe. It is this compelling growth story, which continues to lure in foreign investors into the country.

These sentiments were repeatedly echoed during the recently concluded 36th Asian Bankers Association (ABA) Conference held at the Makati Shangri La hotel last November 15.

Strong consumption spending
The Philippine economy has long been anchored on strong domestic consumer demand. In fact, Household Final Consumption Expenditure (HFCE) has routinely accounted for around 60% to 70% of the country’s total gross domestic product (GDP) over the past two decades or so. The strong consumption in the past 20 years can be attributed to two key factors:

1. Rising levels of disposable income. The country is currently in a demographic sweet spot wherein majority of the population is of working age, leading to a rapid increase in per capita disposable income. This trend is expected to continue in the near future. In fact, industry experts estimate that personal disposable income will double by 2030.

2. Strong OFW dollar remittances. On average, overseas filipino workers, on average, remit more than $2 billion (₱100 billion) every month to their families in the Philippines. This phenomenon is expected to continue in the next decade.

Moving forward in the coming years, these two key factors should continue to drive domestic consumption which, in turn, will continue to drive the country’s overall economic growth.

What will change, however, is the share of domestic consumption in the total GDP. Experts estimate that the ratio of HFCE to GDP (which currently stands at 70%) will decrease in the coming years as the two other pillars of economic growth — private and government investment expenditure — catch up.

Shift towards investments and infrastructure spending
In the last five to ten years, the country has seen a boom in both private and public investments leading to an accumulation of physical capital and much needed infrastructure.

1. Private Investments. A combination of macroeconomic variables such as high historical growth, low interest rates, and manageable inflation rates have made the Philippines an attractive place for foreign players to invest in.

2. Public Investments. In 2016, the Duterte administration launched its “Build Build Build” initiative in order to build up the country’s infrastructure stock.. The Department of Public Works and Highways (DPWH) estimates that over 50 of the 100 “Build Build Build” projects will be completed before the end of President Duterte’s term in 2022.

It is the combined capital accumulation caused by the investment expenditure of both the private and public sectors which would ultimately push the Philippine economy into greater heights. In fact, economists forecast that Philippine GDP will finally breach the $1 trillion mark by 2032.