PH traders turn less optimistic

Business optimism in the Philippines declined in the fourth quarter, according to a study by Grant Thornton International Business Report.

Tax and advisory firm P&A Grant Thornton, a member of Grant Thornton, said business optimism among developed Asia-Pacific economies fell 8 percentage points in the fourth quarter of 2016 to -16 percent while optimism in emerging Asian economies rose 11 points to 53 percent.

The Philippines was an exception among emerging economies as it saw a decline in optimism to 80 percent in the fourth quarter from 84 percent in the third quarter and 94 percent in the second quarter.

Globally, business optimism stood at 38 percent, up 5 pp from the third quarter and the highest level since the third quarter of 2015.

The quarterly global survey covered 2,600 businesses in 37 economies.

“There is a striking split in the direction of travel between business leaders in emerging and developed Asia Pacific countries. Part of the reason for this could be the likely scrapping of the Trans-Pacific Partnership [TPP], out of which developed economies – like those of Australia and New Zealand – stood to gain the most,” said P&A Grant Thornton chairman and chief executive Marivic Españo.

China is looking to implement its own regional economic partnership, which could fill some of that gap. 

Españo said the high levels of optimism in emerging economies reflected what could happen when closer economic ties were in place, with the Asean Economic Community.

The research firm found out that the majority of business leaders were starting 2017 with a positive frame of mind.

“Globally, the increase in optimism reflects a view among the business community that uncertainty over the outcome of major events like the EU referendum and the US presidential election is now behind them. Knowing the results will allow businesses to have a clearer steer on key issues such as taxes, jobs and trade policy,” Españo said.

In Asia Pacific, the proportion of firms expecting profitability to increase over the next 12 months went up to 34 percent, the highest in almost two years. Expectations of profitability in the Philippines increased from 58 percent in the third quarter to 72 percent in the 4th quarter.

Employment expectations remained healthy at 29 percent, and research and development plans for 2017 are higher than this time last year but down from the 32 percent recorded in third quarter.

Globally, the proportion of firms expecting revenue to increase in 2017 rose 5 pp to net 50 percent―the highest figure in nearly two years. China and the US reported particularly strong swings in revenue expectations in the fourth quarter.

However, the report also revealed that the picture outside Asia is not entirely positive. Business optimism in Mexico fell to just 8 percent in the fourth quarter – the lowest quarterly figure it has ever recorded.

In Russia, optimism dropped 13 pp to -7 percent. In addition, the proportion of firms in the EU citing exchange rate fluctuations as a constraint on growth increased 8 pp to 21 percent, as elections in France and Germany have the potential to cause market uncertainty.

“There will be challenges in 2017, including the impact of further rate rises from the US Federal Reserve. But these shouldn’t mean that growth plans across Asia Pacific should be abandoned. They may be focused on investing for greater efficiency, hiring new skilled workers, or researching new markets and services. Dynamic firms with the ability to think long-term and pay attention to their operations will be the big winners,” said Españo.

As published in The Standard, dated 2 January 2017