Economy 3 MIN READ

FDI plunges on global recession fears

June 14, 2023By BusinessWorld

Foreign direct investments (FDI) in the Philippines fell in March as recession fears and slower global trade dampened investor sentiment, the Bangko Sentral ng Pilipinas (BSP) said on Tuesday.

FDI net inflows declined by 30.7% to USD 548 million in March from USD 792 million a year earlier, data from the central bank showed.  These were 47.6% lower than USD 1.05 billion in February.

It was the lowest monthly FDI net inflow since USD 448 million in January.

Net Foreign Direct Investment“The decline resulted from lower net inflows across all major FDI components amid investor concerns over subdued global growth prospects,” the BSP said in a statement. 

Analysts attributed the decline in FDI net inflows to recession fears.

“The European Union has entered a technical recession already, which could affect companies’ interest in expanding,” China Banking Corp. Chief Economist Domini S. Velasquez said in a Viber message. “Likewise, conditions remain tight in export-driven economies such as Singapore.”

The gross domestic product (GDP) in the European Union fell by 0.1% in the first quarter after contracting by 0.1% a quarter earlier.

A country enters technical recession when it posts two straight quarters of economic contraction.

ING Bank N.V. Manila Senior Economist Nicholas Antonio T. Mapa said investment pledges made in the past months likely haven’t materialized yet, causing the decline in FDI inflows.

BSP data showed nonresidents’ net investments in debt instruments of local affiliates plunged by 37.2% from a year earlier to USD 389 million in March.

Investments in equity and investment fund shares also dropped by 7.3% to USD 159 million.

Nonresidents’ net investments in equity capital, excluding reinvestment of earnings, fell by 11.7% to USD 94 million.

Equity capital placements inched down by 2.5% to USD 115 million, while withdrawals surged by 80.3% to USD 21 million.

The equity placements were mainly from Singapore, Japan and the United States. These were invested mostly in the manufacturing, information and communication, and real estate industries.

Reinvestment of earnings slipped by 0.1% to USD 65 million year on year in March.

For the first quarter, total FDI net inflows fell by 19.6% to USD 2.04 billion from USD 2.54 billion a year earlier.

Foreign investments in debt instruments dropped by 22.1% year on year to USD 1.58 billion.

Investments in equity and investment fund shares likewise declined by 9.9% to USD 463 million.

Net foreign investments in equity capital went down by 15.9% to USD 261 million. Equity capital placements inched up by 6.9% to USD 377 million, while withdrawals more than doubled to USD 115 million.

Most of these placements were from Japan, Singapore and the United States.

Reinvestment of earnings dipped by 0.7% to USD 202 million during the quarter.

“Even with lower net FDI in the first quarter, we remain hopeful that hard-earned structural reforms will eventually boost investments to the country,” Ms. Velasquez said.

The government last year amended the Public Service Act to allow companies in sectors such as telecommunications, airlines, railways and shipping to be fully owned by foreigners.

Other measures that seek to attract more foreign investments into the Philippines include changes to the Retail Trade Liberalization Act and Foreign Investment Act.

“Even if 2023 and the first half of 2024 will be driven by bleaker-than-expected investor sentiment, investment potential in the Philippines remains strong in the medium to long term,” Ms. Velasquez added. 

Mr. Mapa expects a turnaround in investment inflows in the coming months as the Philippine economy remains robust.

Economic output grew by 6.4% in the first quarter, slower than 8% a year ago. Still, it was within the government’s 6-7% target for the year.

The central bank expects FDI net inflows to reach USD 11 billion this year. — Keisha B. Ta-asan, Reporter

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