A strong recovery in capital formation will help propel economic growth to the low end of the target range of 6 percent to 7 percent this year, ING Bank Manila said in a report Friday.
The bank’s senior economist Nicholas Mapa considered capital formation as the “missing link” in the country’s growth story for the past months, weighing down the expansion by an average of 1.3 percentage points over the last two quarters.
“Had capital formation remained in positive territory, overall GDP may have easily cleared the 6-percent handle but with the sector posting twin contractions, growth has been held back,” Mapa said.
He said the weakness in capital formation could be traced largely to the pullback in durable equipment investment, posting contractions of -12.8 percent in the second quarter and -9.1 percent in the succeeding quarter.
Mapa said by far the biggest drag on growth has been the consecutive decline in road vehicle, mirrored in lackluster car sales data released by both the AVID (car importers) and the Chamber of Automotive Manufacturers of the Philippines Inc.
“... Meanwhile, construction vehicles were the other main reason for the weakness in durable good investment, catering by 23.7 percent and 43.8 percent in second and third quarter ostensibly as the government budget conundrum mothballed projects and postponed importation of these earth-moving machinery,” he said.
He also said the successive bouts of policy rate hikes and the subsequent tightening in liquidity conditions had sapped investment appetite from corporates to households alike while the budget delay, which stymied government construction outlays, could not have come at a worse time.
The government operated on a reenacted budget the entire first quarter of 2019 because months of impasse between the two houses of Congress delayed the approval of the P3.7-trillion national budget.
President Rodrigo Duterte approved the budget only in April this year. As a result, GDP expansion decelerated to 5.5 percent in the first half, slower than the projected 6 to 7 percent target range for the entire year.