FDIs sink in June as global headwinds fray investor nerves

MANILA, Philippines — Foreign direct investments into the Philippines fell to their lowest level so far this year in June despite a reopened domestic economy, as global headwinds forced investors to rethink their investment decisions.

Data from the Bangko Sentral ng Pilipinas released Monday revealed FDIs recorded a net inflow of $471 million in June, plummeting 51.5% year-on-year. Despite this slump, a net inflow means more FDIs entered the country against those that left.

In the first six months, FDI posted a net inflow of $4.6 billion, up 3.1% on an annual basis.

That said, FDIs represent firmer commitments from foreign investors that generate jobs for Filipinos unlike the so-called “hot money”, which enters and leaves markets with ease.

The BSP projected it would rack up $11 billion in net FDI inflows this year, higher than the actual $10.5 billion generated last year. 

Sought for comment, Domini Velasquez, chief economist at China Banking Corp. noted that the sharp drop in net inflows back in July was due to a worsening global outlook. 

“Advanced economies are expected to enter into recessions as early as end-2022 and possibly 2023 for the US. Moreover, emerging markets such as the Philippines, are likely to get dragged down from lower global demand,” she said in a Viber message. 

For Velasquez, global consumer appetite could waver in the wake of these expected slowdowns. Central banks everywhere raised interest rates in past months in a bid to rein in painfully high inflation.

“We think that until next year, we might see a softening of appetite for both exports and investments from both advanced and emerging economies, in particular, US, Europe, and China,” she added. 

Data broken down showed that equity capital placements, a measure of new FDIs, contracted 24.4% year-on-year to $739 million.

Likewise, inflows in June were hampered by a decline in intercompany borrowings between multinational companies and their Philippine offices. BSP said this plummeted 71.9% year-on-year to $215 million due to higher repayments during the month. 

Reinvestment of earnings inched up 8.6% on-year to $124 million back in June. 

Citing “structural reforms” such as liberalization laws and a campaign to attract more foreign investors, Velasquez believes the Philippines could endure a global economic recession.

“Among countries in the world, Southeast Asia looks poised to weather the global downturn in better shape, and the Philippines should benefit from this,” she said.