No. 86 - February 2007
Upbeat Mood for Business

MBC’s 2007 Executive Outlook Survey

By Michael B. Mundo , Senior Research Associate

Business outlook on the economy for 2007 is the most upbeat in 11 years, according to the Makati Business Club’s Executive Outlook Survey undertaken in end-January to early February this year. Eighty-one percent of respondents believe that economic growth in 2007 will be higher than the 5.4% record of 2006. This percentage of optimistic respondents was only overshadowed in July 1996 when 93.9% of respondents believed economic growth would be higher in 1996 compared to 1995.

Economic Outlook: Strong peso fails to discourage exports

Optimism on the overall economy rose to an 11-year high as over 80% of senior business executives from large corporations participating in the survey expect a faster GDP growth for 2007 compared to the domestic economy’s 5.4% expansion in 2006.

Furthermore, over 61% expect inflation rate to continue to slow down in 2007 from 6.2% in 2006. Meanwhile, nearly two-thirds expect the interest rate bellwether, the 91-day T-bill rate, to fall further in 2007 from a weighted average interest rate of 5.35% in 2006.

Close to 63% now believe the trend of a appreciating exchange rate will continue, reaching P47.21/US$ by end-2007 from P49.03/US$ in end-2006. It is no surprise, therefore, that close to 84% anticipate imports to rise in 2007 from an estimated level of US$51.5 billion in 2006. Expectations of a stronger peso-dollar rate, however, failed to dampen mood for more exports with close to 73% of respondents expecting exports to rise in 2007 from a level of US$47.0 billion in 2006.

Over 74% of businessmen also expect the project cost of investments approved by government agencies (BOI, PEZA, CDC, SBMA) to rise in 2007 from an estimated level of P350.0 billion in 2006.

Corporate Performance: Manufacturing capacity up

Capacity utilization rates in manufacturing companies improved to 70.6% in end-2006 from 68.2% in end-2005. Raw material and finished goods inventories moved faster, going down to 1.7 and 1.4 months in end-2006, respectively, from 2.1 and 3.0 months in end-2005.

Corporate Outlook: In high spirits

Looking forward, optimism prevails among senior business executives in the early part of 2007. Over 87% expect their gross revenues to rise at an average rate of 14.7%. Only close to 2% expect their gross 2007 revenues to decline at an average rate of 6.0% this year. Almost 65% expect 2007 net income to grow at an average of 19.6%. On the other hand, over 11% expect net income to decline at an average rate of 11.6% this year.

With regard to hiring practices, over 32% plan to expand their workforce this year at an average rate of 10.2%. In 2006, only around 30% wanted to expand their workforce at an average of 10.6%. Those planning to keep their workforce size steady this year dropped to nearly 52% from close to 59% last year. Those who plan to cut back on their workforce size also dipped to close to 5% from over 6% a year ago. Those downsizing plan to cut down workforce size by an average of only 3.0%, down from almost 11% a year ago.

Over 45% of respondent companies plan to make additional investments this year, down from 50% last year. The average amount of additional investments, however, rose to a seven-year high of P953.6 million from P387.3 million.

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