PHL business optimism falls to lowest since 2016

ECONOMIC OPTIMISM among Philippine midsized businesses continued to fall in the second half of 2020, as the pandemic continued to weigh heavily on the economy.

The P&A Grant Thornton International Business Report (IBR) on Monday said that almost half (49%) of the 50 midsized Philippine businesses surveyed have either “a slightly or very optimistic economic outlook” for the next 12 months.

This was five percentage points lower than the 54% in the first half last year, which was already the lowest percentage of optimistic businesses since the 68% in first quarter of 2016.

The pandemic wreaked havoc on the Philippine economy, which shrank by an average of 10% in the first nine months of 2020. Economic managers expect the full-year economic contraction at 8.5-9.5%.

Unlike the Philippines, there was an improvement in business optimism around the world in the second half of 2020, the IBR showed. The report indicated 57% of the 10,000 businesses surveyed across 32 countries had an optimistic outlook for the next 12 months, an improvement from the 43% in the first half of 2020.

The survey also showed some Philippine businesses are becoming less hopeful on their growth prospects this year.

“With optimism steadily sinking among the mindset of mid-market leaders, other key indicators are also sluggishly turning downwards,” Grant Thornton said.

Philippine businesses expecting a rise in revenues in the next year fell two percentage points to 43%, while those expecting profitability slipped three percentage points to 47%.

In contrast, the percentage of firms that anticipate an increase in exports went up to 48% from 44%, with those expecting more revenue from non-domestic markets jumping to 47% from 36%.

Although businesses that expect to boost employment went up by six percentage points to 51%, the IBR said it will remain below pre-pandemic levels.

Businesses continue to express concern about economic restraints, as varying degrees of lockdown restrictions remain in place. More than half named economic uncertainty as the top constraint to growing their business. Around 47% also said they expect finance shortages despite monetary easing and fiscal support.

“As optimism has decreased, this has materially flowed through to orders, with 56% citing shortage of orders as a constraint. Businesses are also concerned about availability of skilled staff and labor costs with 50% of businesses citing each as a constraint on their ability to grow,” the report said.

Half of the businesses surveyed raised concern over high labor costs, availability of labor, and red tape.

Businesses are, however, continuing to invest, especially in research and development (51%), staff skills (50%), and technology (47%).

“With second and third waves of COVID-19 hitting many markets, the need to invest in enhancing an existing product portfolio, digital business models and having people with the skills to operate in a virtual world for the foreseeable future continues to drive investment decisions,” Grant Thornton said.

P&A Grant Thornton Chief Executive Officer and Chairperson Ma. Victoria C. Españo said that the overall data showed that mid-market business leaders are realistic about potential challenges in the first half of 2021.

Global businesses expecting revenue increases went up to 45% from 34%, while those anticipating profitability increased to 44% from 32%. Those with improving employment prospects also increased to 38% from 28%.

“While the outlook is showing real improvement with both economic optimism and expectations around revenue and profits on the rise, it is important to note the context of these increases. In many cases the improvements we are seeing are due to firms benchmarking the next 12 months against the very depressed economic environment of 2020 due to COVID-19,” Ms. Españo said.

“Even with vaccines being rolled out in some markets, the reality is it will still be some time before we return to anything approaching normality.” — Jenina P. Ibañez