Business optimism weakens in Q1

BUSINESS OPTIMISM in the Philippines weakened sharply in the first quarter of 2018, according to global research firm Grant Thornton’s International Business Report (IBR), which attributed this to a drop in employment and profitability expectations.

A summary of IBR findings showed Philippine business leaders’ overall optimism ( total optimistic less total pessimistic) stood at 74% in the first quarter of 2018 — down from the preceding three month’s 86%, and 24 points less than the all- time high of 98% recorded in the first quarter of 2017.

Grant Thornton described the more than 2,500 respondents worldwide as chief executive officers, managing directors, chairmen or other senior executives from across industries.

The bleak outlook for the Philippine economy over the next 12 months can be attributed to the decrease in employment expectations to 52% from 66% in the previous quarter, lower investments in plant and machinery to 40% from 54%, slide in investment in technology to 50% from 62%, and drop in profitability expectations to 76% from 86%.

Despite the weakness, the latest quarterly survey puts the Philippines third in the rankings among Asian countries where the regional average is 52% and the Southeast Asian average is 61%.

“Both regulations & red tape (down 12 percentage points) and information & communications technology infrastructure ( also down 12pp) are less seen as hurdles to doing business in the country. Businesses expect an increase in their selling prices ( up 10pp) as well. Lastly, energy costs and transport infrastructure ( both down 8pp) are also seen as less of a constraint to conducting business. As a result, more than half of the businesses surveyed foresee an increased investment in marketing efforts, as well as in sales force effectiveness,” Grant Thornton said.

The IBR also found a dip in business optimism across Asia Pacific in the first quarter to 52% from 58%, bucking the wider global trend that saw Asia Pacific and Latin America as the only major regions to see optimism fall over this period.

Globally, business optimism improved to 61% — the highest figure recorded in 15 years of research — from 58% in the previous quarter.

“The drop in optimism across Asia Pacific contrasts with most other global regions. It is striking that the major contributors to this dip are China and Japan. That said, their confidence levels still compare favorably with those in recent years,” Ma. Victoria C. Españo, chairperson and chief executive of P&A Grant Thornton, said in the statement.

In China, business optimism slid to 65% in the first quarter from an all-time high of 78% in the fourth quarter of 2017. In Japan, business optimism stood at -8% after recovering to 3% in the preceding three months following nine consecutive quarters in negative territory.

“A talking point for the whole region, though, is the rhetoric around import taxes with the US ratcheting up. It will be telling to see how businesses respond over the next quarter. Most take the view that the risk of a fully blown ‘trade war’ has eased, but uncertainty is never welcome. Most business leaders will want to see clarity sooner rather than later,” Ms. Españo said.

Across Southeast Asia, economic optimism is up to 61% in the first three months — the joint highest quarterly figure ever recorded according to Grant Thornton — on the back of substantial increases in optimism in Malaysia (up 22 points), Singapore (up 12 points), and Thailand ( up 6 points).

“The dip in optimism in China and Japan hardly represents confidence in free fall. However, how the region responds will be telling. ASEAN businesses are currently optimistic, but if they see the war of words on trade develop between China and the US, that confidence could start to evaporate,” Ms. Españo said. —