Local firms still bullish despite Europe’s woes

The Bangko Sentral ng Pilipinas expects investments by local firms to stay on a growth trajectory, saying there are no signs so far that optimism among domestic businesses is waning just because global economic conditions remain weak.

BSP Deputy Governor Diwa Guinigundo said favorable economic indicators for the Philippines should help maintain local enterprises’ appetite for doing business.

“Local investors have all the reasons to remain bullish. Domestic demand, given the young population, higher employment [especially in the business process outsourcing sector], and sustained remittances from overseas-based Filipinos should continue to drive the Philippine economy,” Guinigundo told the Inquirer.

The Philippines remains a laggard in the region as far as attracting foreign direct investments is concerned. Nonetheless, the economy has witnessed gradual rise in investments by local firms amid a generally positive outlook on the country’s growth performance for the medium term and governance reforms. This is credited to the fact that local businesses are said to be more knowledgeable than foreign ones about growth prospects in the country.

In the first quarter, investments in fixed capital formation grew by 2.8 percent from a year ago.

Guinigundo said household consumption, driven by remittances, is expected to remain strong. This should prompt local firms to continue investing, he said.

The central bank official also cited low inflation and low interest rates in the country, which make it affordable for businesses to purchase capital goods and to secure loans.

“If investors need to borrow money from the banks, interest rates are at historic lows. They should be competitive [against firms based abroad] given their relatively low cost of operation,” Guinigundo said.

The official said growing consumption by Filipinos and robust growth of the Philippine economy, despite global economic challenges, provide good income prospects for firms in various types of businesses.

“The food business remains promising. Tourism should also be good investment. BPO continues to be competitive in the Philippines. Agro-industrial pursuits should remain profitable given our population and our agricultural resources,” Guinigundo said.

Latest survey by the BSP on business sentiment showed that the confidence index among enterprises in the country improved to +44.5 percent in the second quarter from +31.8 percent in the same period last year.

The confidence index is computed as the difference between the percentage of respondents that are optimistic about their income prospects and the economy, and the percentage of those that are pessimistic.

In the first quarter, the Philippines grew by a faster-than-expected pace of 6.4 percent from a year ago. This was the second-highest growth rate in Asia during the period next to China’s 8.1 percent.