Growth in investment projected at over 20% in this year — DBS

TOTAL investment is expected to post strong growth this year, continuing to drive a buoyant economy, but the indicator will likely ease off in the next few years, DBS Group Research said in a report.

“Full-year investment growth is set to reach over 20% this year, a record-high for the economy. This is a major driver for the economy, which has grown by 7% so far this year, among the fastest in the region,” the Singapore-based bank said in a Dec. 1 report.

Capital formation was among the major drivers that led third-quarter gross domestic product (GDP) to expand by 7.1%, the fastest pace in three years and among the highest in the region.

Investment spending largely drove growth in the quarter, led by private sector construction which rose by 16.2% during the JulySeptember period against a modest 4% rise booked a year earlier, the National Economic and Development Authority (NEDA) said. The government’s infrastructure investments also grew by “over 20%” during the quarter.

Despite plans to further raise the level of public spending for the coming years, DBS said investment growth is likely to moderate but will remain in the double digits, owing to base effects and ample inventories held by companies, doing away with the need for extensive restocking activity.

“While the government is set to increase its spending next year, we still expect overall investment growth to moderate. Our concern still lies with the inventory buildup over the past years,” DBS analysts noted. “There have been no material de-stocking activities since Q2 2013. De- stocking looks imminent and once it happens, investment growth should moderate next year.”

The government is looking raise the level of public spending in order to stimulate further economic growth. In particular, the 2017 national budget allots P860.7 billion for public infrastructure equal to 5.4% of GDP, alongside a higher budget deficit ceiling of 3% of GDP to make room for expanded state spending.

DBS projects investment growth to slide to 10.5% by 2017, slower than this year’s 20% projection but still ample enough to propel rapid GDP expansion.

“Contribution from investments to overall GDP growth is still set to average about 2.8%pt in 2017, enough to maintain overall GDP growth above the 6% mark.”

Economic growth during the first nine months averaged 7%, matching the high end of the government’s 6-7% growth target. Economic managers are targeting a 6.5-7.5% expansion by 2017, and 7-8% annually until 2022.