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No. 68 -
August 2005
Executive Outlook Survey
Crisis Dampens Business Optimism
By Michael B. Mundo, Karen B. Bitagun and Shiela F. Camingue
 Despite the government’s improved fiscal condition in the first half of the year, optimism in the economy among business executives has dropped as political crisis takes its toll on the economy. Business optimism at the beginning of the year has reversed into an onset of pessimism in the second half as the country has slipped into a prolonged political crisis, according to the MBC Executive Outlook Survey conducted by the Makati Business Club. The survey was undertaken from July 1 to 29 among MBC members with 12.7% of members responding.
Economic Outlook : Lower GDP Growth in 2005
Over 71% of executives now feel that the GDP growth rate for 2005 will be lower than in 2004, a sharp downturn in business optimism compared to January 2005 when the survey was last taken. At the beginning of the year, a plurality of 58.6% forecast the economy to grow either the same or at a higher pace than last year. In the first quarter, GDP growth decelerated to 4.6% from 6.4% a year ago.
ECONOMIC OUTLOOK
Percent (%) of respondents |
| |
|
Jan-05 |
Jul-05 |
| GDP Growth Rate |
Better than 2004 |
22.9 |
2.1 |
| |
Same as 2004 |
35.7 |
26.6 |
| |
Lower than 2004 |
38.6 |
71.3 |
| INFLATION Rate |
Higher than 2004 |
72.9 |
86.2 |
| |
Same as 2004 |
20 |
7.4 |
| |
Lower than 2004 |
4.3 |
3.2 |
| 91-DAY T-BILL RATE |
Higher than 2004 |
75.7 |
62.8 |
| (average) |
Same as 2004 |
20 |
26.6 |
| |
Lower than 2004 |
1.4 |
10.6 |
| PESO-US$ RATE |
Same as end-2004 rate |
25.7 |
24.5 |
| (year-end) |
Appreciating over end-2004 rate |
10 |
7.4 |
| |
Rate of appreciation (%) |
4.6 |
3.3 |
| |
Depreciating over end-2004 rate |
60 |
68.1 |
| |
Rate of depreciation (%) |
5.6 |
4.9 |
| INVESTMENTS |
Higher than 2004 |
45.7 |
16 |
| |
Same as 2004 |
27.1 |
28.7 |
| |
Lower than 2004 |
22.9 |
54.3 |
| EXPORTS |
Higher than 2004 |
52.9 |
43.6 |
| |
Same as 2004 |
28.6 |
29.8 |
| |
Lower than 2004 |
14.3 |
25.5 |
| IMPORTS |
Higher than 2004 |
60 |
42.6 |
| |
Same as 2004 |
22.9 |
35.1 |
| |
Lower than 2004 |
12.9 |
21.3 |
No. of respondents: 94 (12.7% of MBC membership)
Survey period: January 2005 (6 to 28 January); July 2005 (1 to 29 July)
Totals may not add up to 100% due to rounding off or no response. |
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Majority of executives also expect inflation rates to kick in higher than last year’s 6.0% rate. Over 86% now feel that inflation in 2005 will be higher than in 2004, as compared to 73% who forecast higher inflation rates in the January 2005 survey. The average headline inflation rate has risen to 8.3% in the first six months from 4.4% a year ago, mainly on account of higher world crude oil prices.
Interest rates are also expected to increase in 2005. Close to 63% of respondents expect the average 91-day T-bill rate to overtake last year’s 7.34% level. The sentiment on the interest rates remains the same as in January, despite a drop in the bellwether rate to 6.64% in the first six months from 6.93% a year ago on account of a narrower fiscal deficit. The mood, however, may have changed following the temporary suspension of the expanded Value-Added Tax following the Supreme Court’s decision of July 1. A final decision on the EVAT is expected sometime in August.
More than two-thirds of business respondents expect the peso to depreciate against the dollar by about 5% in the next six months.
he relatively bullish mood on investments early in the year has turned bearish after six months. A little over 54% of senior business executives now expect investments in 2005 to fall below last year’s P221.8 billion in investment approvals by the Board of Investments, Philippine Economic Zone Authority, Clark Development Corporation, and Subic Bay Metropolitan Authority. In sharp contrast, almost 46% of MBC members polled last January projected higher levels of investments in 2005.
With respect to merchandise trade, the business community expects both imports and exports to increase over last year, although the level of optimism has dropped somewhat. From 53% last January, the number of respondents expecting exports to increase has slid to 43.6%. The country exported US$39.6 billion worth of merchandise in 2004. Exports grew only four percent to US$16.0 billion in the first five months of the year due to weak global demand for electronics. On the other hand, nearly 43% of respondents now project imports to top last year’s US$40.3 billion level. Merchandise imports have dropped 0.2% to US$16.4 billion in the first five months, also on the back of sluggish demand for electronics.
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