Instinctively, we know that a rapid rise in gross domestic product (GDP), a measure of economic output, is good for business. That's probably why a lot of entrepreneurs followed the Philippines Statistics Authority's (PSA) fresh announcement that GDP rose 7.1 percent in the third quarter.
The expansion is higher than the government’s full-year target of 6 to 7 percent, and slightly better than last quarter’s. The services sector remains as the biggest GDP contributor with 4.1 percentage points.
To check exactly how GDP impacts businesses, we took a close look at the PSA's Annual Survey of Business and Industry from 2003 to 2013, which counts the number of establishments that employ 20 or more employees.
Though the survey was conducted only periodically (not annually as the name suggests), we were able to confirm the notion that a buoyant economy is a boon for the establishment of new businesses.
That could explain why entrepreneurs suddenly find they have more competitors when the economy is doing exceedingly well.
As economic growth picked up in recent years, so did the pace of the founding of new business establishments, according to PSA data. The survey shows that the number of business establishments soared by 10,573 between 2010 and 2013. That pace of growth is almost triple the increase of 3,242 between 2003 and 2010, a period when economic growth was rather sluggish.
“SME is largely part of the services sector (example, trade and business activities), which grew 10 percent [this quarter]. Medium sized companies that are in real estate, construction also grew by 7 percent [this quarter] according to stats. Based on this, SME activities definitely grew with GDP,” Entrepreneur Philippines Financial Adviser columnist Henry Ong explained.
Business founders were much busier in recent years when they formed 3,524 establishments a year, representing the net annual change in the number of businesses between 2010 and 2013. In sharp contrast, the net change per year from 2003 to 2010, was only 463, suggesting a much slower pace of business activity.
For those planning to launch a new business or expand existing ones, a buoyant GDP represents a good opportunity to finally do so.