By Bernie Cahiles-Magkilat
Business optimism in the Philippines has dipped from 88 percent to 81 percent from the same quarter last year over growing concerns of the weakening local currency, latest research from Grant Thornton’s International Business Report showed.
The survey finds Philippine businesses optimistic – but exchange rate concerns are growing. The survey, however, noted that while the decrease in optimism reflects the country’s reaction to the external economic environment, the moderate pace of economic growth, and the short-term challenges, the business outlook for the Philippines is the second highest among Southeast Asian nations surveyed.
These figures generally reflect the long-term view that the Philippines is on track towards becoming one of the top 20 economies in the world.
There have been significant improvements in what are perceived to be major constraints to doing business in the Philippines. More and more organizations view regulations and red tape as less of a constraint: IBR ratings on red tape have dropped to a six-year low of 20 percent.
Transport infrastructure is also reported to have greatly improved: views on transport infrastructure as a hindrance to business conduct have decreased to a six-year low of 14 percent.
In addition, an increasing number of businesses report that the lack of skilled workers is no longer a major constraint to doing business. IBR ratings on the lack of skilled workers have dropped by 20 percentage points to 36 percent. Most importantly, profitability expectations among Filipino businesses increased by 24 percentage points to 80 percent.
However, less companies expect to invest in research and development over the next 12 months: expectations decreased by 14 percentage points to 48 percent this year.
There are spectacular growth opportunities for domestic and neighboring markets in Asia. Demand and production capacities will continue to grow. In fact, 54 percent of Filipino senior business executives surveyed say that they intend to expand their business domestically in the next 12 months. Manufacturing has seen an upsurge in recent months, as more foreign investors look at the Philippines as a manufacturing hub in the long term. More businesses expect to invest in plant and machinery at 70 percent.
Business optimism among ASEAN firms sits at net 64 percent in Q2 2018. But the research from Grant Thornton also finds that behind the confidence hides a threat. There are growing concerns about exchange rate fluctuations, driven by the prospect of further US Federal Reserve rate rises this year. The proportion of ASEAN business leaders citing exchange rate fluctuations as a constraint on their ability to grow sits at 36 percent. This is a sharp increase from 29 percent in Q1 and 26% in Q4 2017.
Marivic Españo, Chairperson and Chief Executive Officer at P&A Grant Thornton, commented:
“The record levels of optimism are great to see. They are undoubtedly pushed upwards by the continued growth of China, a close trading partner for many of the region’s economies. But what’s really encouraging to see is the greater focus on regional cooperation since the formation of the ASEAN Economic Community in 2015. Closer ties between businesses will provide the future fabric for growth in the region in the years ahead.”