MBC Executive Outlook Survey

31 January 2005
Reality Check
Moderate growth outlook for 2005

The business community’s outlook on the Philippine economy is somewhat tempered for 2005, notwithstanding the strong economic growth in 2004.

Almost 40 percent of senior business executives polled in the Makati Business Club’s January 2005 Executive Outlook Survey believe that the country’s GDP growth rate will slow down this year. At the same time, over a third of respondents project the economy’s growth will remain the same as last year. Only 23% expect the economy to grow faster than last year. The country’s domestic economy grew 6.1% in 2004 from 4.7% in 2003.

The cautiousness seems to be partly anchored on the forecast for inflation and interest rates. About 73% of executives polled expect a higher inflation rate this year. Inflation rose to 5.5% in 2004 from 3.0% in 2003. Another 76% predict a higher average rate for the interest rate benchmark, the 91-day Treasury bill. The 91-day T-bill rate rose to 7.352% in 2004 from 6.034% in 2003. And in spite of the appreciation of the peso early in the year, 60% expect the peso-dollar rate to depreciate 5.6% over the next 12 months.

While prospects for investments and trade remain positive in 2005, the mood is not as bullish as in 2004. The number of executives expecting higher investments and growth in exports and imports is running considerably lower than at the beginning of 2004. Nearly 46% expect higher investments in 2005. Another 53% forecast higher exports this year while 60% likewise project higher imports.

CORPORATE OUTLOOK

The corporate earnings reports for the full year will be somewhat tempered for many companies. In the July 2004 survey, the vast majority – from 75% to 87% expected revenue and income growth in 2004. That number has now dropped significantly in the January 2005 survey to only 44% to 57% expecting gross revenue and net income growth. It should be pointed, though, that among the companies expecting a rise in revenues and income, those increases are expected to be dramatic. Notwithstanding that, most companies have downgraded their own net income expectations for net income for 2004.

Looking ahead to 2005, 73% of respondents project corporate revenues to grow at an average of 15.6% while 60% expect corporate net income to grow at an average of 27.2% on a year-on-year basis.

The outlook for labor should remain reasonably stable. Sixty percent of respondent companies plan to hold their current workforce size steady (compared to 64% in July last year) while over 27% will expand their workforce. On the other hand, close to 6% plan to layoff or downsize their workforce this year.

The outlook for investments is also fairly moderate. Only 47% of respondent firms plan to make additional investments this year, compared to over 71% last year. However, the average investment will be significantly higher than year-ago levels. One factor behind the moderate investment activity may be the drop in capacity utilization rates for manufacturing companies. Manufacturers in the survey reported a decline in the average capacity utilization rate to 67.8% in end-December 2004 from 76.9% in end-May 2004.

GOVERNMENT PERFORMANCE

Business executives continue to rank the Bangko Sentral and the Department of Trade and Industry as the two top performing government agencies in the past six months. The Department of Social Welfare and Development and the Department of Foreign Affairs ranked third and fourth place. The Department of Agriculture and the Department of Budget and Management were tied for fifth place. Both DFA and DBM improved their ratings while DA dropped two places to fifth.

The House of Representatives, Senate, Department of Public Works and Environment, Department of Public Works and Highways, and the Commission on Elections were all ranked to worst performing agencies of government in the last six months.

The most improved government agency in the past semester was the Department of Budget and Management, which rose from No. 17 to No. 5 in the survey and saw its net satisfaction ratings rise from 11.5% in July 2004 to 38.6% in January 2005.

The government agencies whose net scores deteriorated the most were the following: the Department of Tourism (down 60.3%), the Supreme Court (down 36.6%), Armed Forces of the Philippines (down 36.1%), Department of Environment and Natural Resources (down 29.4%), and the Metro Manila Development Authority (down 29.3%).

DEVELOPMENTS AND ISSUES

The semestral survey regularly tracks developments and issues over a 6-to-12 month window. Among the major developments cited in the second half of last year were the government’s decision to expropriate and operate NAIA 3, the passage of the sin tax law (RA 9334), the Supreme Court’s reversal of its ruling on the Mining Act, peace and order, and political stability. The government has promised to open the airport within six months and has also pursued other tax measures in order to bring the fiscal position into balance over the next several years.

Among the major issues which businessmen were asking the government to immediately address were revenues and the fiscal deficit, graft and corruption, peace and order, infrastructure, and investments.

ABOUT THE SURVEY

MBC’s Executive Outlook Survey is conducted twice a year among its members. The January 2005 Executive Outlook Survey was conducted from 6 to 28 January with 70 respondents or close to ten percent of MBC’s membership participating in the survey in the survey. Close to 79% of respondents belong to top management positions. More than 67% of respondents are Filipinos.

By industry, over 49% of respondents’ companies belong to the services sector, while close to 16% are in the manufacturing sector. By company size, 36% reported annual revenues of P1 billion and over, 21% had between P500 million to P1 billion in annual turnover, and 19% had less than P100 million. In terms of employee size, more than a quarter have less than 99 employees, while more than 24% employ between 100 to 299 people, close to 19% over 1,000 employees, almost 13% between 500 to 999 employees, and more than 11% between 300 to 499 employees.