International Business Report

Growth expectations up as optimism ebbs

Majority of mid-sized Filipino companies have grown their revenue by more than five percent in the last 12 months despite a three-year low in overall outlook, according to Grant Thornton International Business Report.

According to H2 2019 data from the Grant Thornton International Business Report, 57 percent of Filipino mid-size companies surveyed have grown their revenue by more than five percent in 2019.

“While the Filipino mid-market remains optimistic when it comes to revenue and profitability, the overall outlook for the Philippine economy has dropped by 17 percent points from 84 percent in the first half of 2019 to 67 percent in the second semester 2019—a low level of optimism that has not been seen since the first quarter of 2016,” the IBR noted.

In terms of outlook for 2020, Philippine businesses remained one of the 10 most optimistic economies among the more than 30 firms surveyed.

Two-thirds of firms retain an optimistic or very optimistic economic outlook for the Philippines, but this is down 17 percentage points since H1 2019 and is a series record low. Nevertheless, the mid-market remains hopeful that its revenues and profitability will remain high.

The expectations of the mid-market to grow revenue have slightly decreased from 70 percent in the first quarter of 2019 to 68 percent in second semester of 2019, while profit expectations have decreased from 80 percent in first half 2019 to 71 percent in second half of 2019.

Revenue and profit expectations both declined—although more modestly in comparison to the fall in optimism—and both remain strongly positive at around more than 70 percent.

Business optimism has dropped by 17 percentage points from 84 percent in the first semester of 2019 to 67 percent in second half of 2019. The last reporting period when privately held firms cited such a low level of optimism was in the first quarter of 2016.

Forty-four percent of mid-market companies in the Philippines expect their exports to increase, even if expectations have actually decreased from 59 percent in the first half of 2019 to 44 percent in the second half of 2019.

Export intentions also declined by 15 percentage points to 44 percent—although it remains almost double the 2015 to 2018 average. However, this is below the ASEAN average and moving in the opposite direction to the emerging trend in Asia Pacific.

In terms of investments, the report said that local mid-market was mostly down from the first half of 2019, although a majority of firms still expect to increase investment expenditure over the next 12 months.

The report said that 68 percent of business surveyed intend to invest in research & development, followed by employment (67 percent), technology (63 percent), plant & machinery (53 percent), and new buildings (53 percent).

Ma. Victoria Españo, Chairperson and CEO of P&A Grant Thornton, commented: “The latest figures are beginning to reveal the global slowdown in economic growth. On a positive note, mid-sized firms in the Philippines remain very much optimistic about their expansion.”

Economic uncertainty has remained relatively stable since the beginning of 2018. However, firms are increasingly concerned about a shortage of orders.

When asked what were their biggest constraints to domestic growth and expansion, 40 percent of Filipino mid-sized firms cited reduced demand for their products and services—rising 5 percentage points to 40 percent, the same as of the second half of 2018 and the highest for three years.

Around one-third of firms view the availability of skilled workers and labor costs as business constraints, lower than global and ASEAN averages. 27 percent of Filipino medium-sized companies surveyed said that financial constraints were a barrier to expanding their business internationally, while others also cited rule of law and corruption (26 percent) and tax codes and compliance (25 percent) as barriers.

 

As published in Manila Bulletin, dated 15 January 2020