P&A Grant Thornton News

Business optimism in PH remains sluggish – survey

Business optimism in the Philippines still remained sluggish with less than 50 percent of mid-market businesses have slightly or very optimistic outlook for the next 12 months.

The latest figures from Grant Thornton’s International Business Report (IBR) which gathers responses from nearly 5000 business leaders in 29 economies including the G20 showed that while economic optimism is resurgent, only 49 percent of businesses have a slightly or very optimistic economic outlook for the next 12 months.

The figure, however, was 5 percentage point decrease only from six months ago when the government mandated lockdowns saw economic optimism fell to the lowest level since 2016, the report said.  The survey was conducted between October to December 2020.

With optimism steadily sinking among the mindset of mid-market leaders, the survey also indicated that other key indicators are also sluggishly turning downwards with 43 percent of businesses expecting revenues to increase over the next 12 months (-2 percentage points on H1), along with profitability (47% -3 percentage points). On the other hand, employment increased (51% +6 percentage points).

The report, however, explained that the data came after a very challenging year, in which mid-sized companies (the mid-market) saw their revenue decrease by an average of 1 percent globally after they factored in the impact of COVID-19 (EU: -5%; APAC: -2%, North America: +3%, Latin America +4%).

“This highlights the fact that economic uncertainty remains at elevated levels, with 53 percent of businesses in the Philippines indicating it is the number one constraint on their ability to grow their business. And as optimism has decreased, this has materially flowed through to orders, with 56 percent citing shortage of orders as a constraint. Businesses are also concerned about availability of skilled staff and labor costs with 50 percent of business citing each as a constraint on their ability to grow,” the report stated.

The report further noted that companies are making investments – with traditional categories making a comeback.

For instance, the report said that number one investment area is research and development (with 51% expecting to increase this in the coming year), followed by staff skills (50%) and technology (47%) as businesses continue to retool for a new world of business.

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.

Additionally, in this latest research, we are seeing less traditional investment categories come to the fore. The percentage of mid-market companies looking to increase investment in new buildings decreased 4 percentage points to 39 percent, while the percentage of mid-market companies looking to increase investment in plant and machinery increased 4 percentage points to 46 percent, respectively.

Funding that investment and meeting the continuing operating needs during the pandemic, however, may not be straight forward. Shortage of finance remains a significant concern for businesses, with 47 percent of firms identifying it as a business constraint over the next 12 months, increasing by 6 percentage points from the number set in the first half of 2020 when the full scale of the pandemic was becoming evident. This is despite record monetary easing and fiscal support provided by the government to businesses in the country as they attempt to alleviate cash flow constraints arising from COVID-19. 

In preparation for recovery, mid-market companies around the globe are prioritizing the ‘use of technology to support organizational recovery’ and looking at ‘workplace safety and new workplace regulatory requirements’ – with 39% of global companies planning or implementing strategies in these areas. The next priority is what ‘financial resources will be needed’ (33%), with some attention also being given to what product or service area and markets to focus on (31%).

Marivic Españo, CEO and Chairperson, P&A Grant Thornton said,  “The latest IBR data demonstrates to us that mid-market business leaders globally are being very realistic about the challenges that the first half of 2021 will bring, but they are facing this uncertainty with sensible pragmatism and resilience.”

Marivic Espano, chairperson and CEO P&A Grant Thornton

While the outlook is showing real improvement with both economic optimism and expectations around revenue and profits on the rise, Espano said 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. 

“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. Many businesses have already made transformational changes to their operating models and investments in this area, and this show no sign of abating as everyone looks to ensure they are able to compete in a post-COVID world,” Espano said.

 

As published in Manila Bulletin, dated 26 Januayr 2021