Importance of investmentDespite signs of acceleration in the economy, there are still too many danger zones to declare the country is on its way to a steady recovery.
The July industrial activities report recently released by the National Statistical Office mirrors the unstable state of our economy.
The report shows that manufacturing and spending have improved a great deal, while capital investment, a barometer for future growth, has declined. Mining and manufacturing output edged out of the minus-zone for the first time in 10 months to register a 0.7 percent rise in July, compared to the same period a year ago. Compared to June, production increased for the seventh-consecutive month, with a 2 percent increase. Sales of consumer products rose 1.9 percent year-on-year, maintaining growth in that area for the third straight month.
Led by brisk manufacturing and sales, economic activity has for the most part recovered to what it was before the worldwide economic slump hit the market last year.
The latest economic improvements, however, appear too fragile to guarantee a sustained period of recovery. Capital investment, which had gradually been improving through June, plummeted in July. The contraction in capital investment, which had eased to 4.9 percent in June from the same period a year ago, widened to a staggering 18.9 percent in July.
Manufacturers are running their production facilities at greater capacity and reducing their inventories to become more active in the market. Yet they still remain unwilling to invest, suggesting they continue to have reservations about the economy.
Corporate investment, along with consumer spending, is a driving force in domestic demand and economic recovery. But more importantly, it serves as a litmus test for future growth.
Corporate investment creates jobs and pumps needed capital into the economy. Only when investment picks up and employment increases can we finally breathe a sigh of relief that the economy is truly on the rebound. Without these things, the economy cannot grow, now or in the future.
The most urgent task we face is encouraging companies to invest. Government policies must include corporate incentives to ensure continued investment.
This is the only way to speed up recovery, build a foundation for sustainable growth and provide more jobs.