Tuesday, August 02, 2005


According to Business World, executives at the MBC have supposedly turned gloomy after buoyant spirits at the start of the year. But the Business World report is far from illuminating. Consider:

Over 71% of executives now expect economic growth (gross domestic product or GDP growth) for 2005 to be lower than in 2004, a sharp downturn in business optimism compared to January, when 58.6% forecast the economy to grow either the same or at a higher pace.

But wasn't this too optimistic to begin with? Back in February a government think-tank (the Philippine Institute of Development Studies) had already forecasted a growth slowdown (5.6% GDP growth for 2005.) So wasn't this a correction on the executives' part?

Over 86% now also feel that inflation in 2005 will be higher than in 2004, as compared to 73% who forecast higher inflation rates in January.

Given sustained high petroleum prices, this is to be expected. Whether it will turn out to be correct is another story.

Close to 63% of respondents also expect the average 91-day T-bill rate to overtake last year’s 7.34%. 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 semester 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," the club said.

What? Why will the mood change? Shouldn't it worsen? Anyway, banks are awash with cash right now, driving T-Bill rates south. The feared fiscal tailspin is far from imminent, and government remains the most reliable borrower yet.

More than two-thirds of business respondents expect the peso to depreciate against the dollar by about 5% in the next six months, it also said.

I wonder how many of them would put their money where their mouth is. Those who expect the exchange rate to rise in six months, ought to convert their peso holdings to dollars now (in proportion to their degree of confidence, and adjustments for inflation and interest rate costs), and realize a gain later. That is, if they really expect it.

A little over 54% of senior business executives are now expecting 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 Corp., and Subic Bay Metropolitan Authority, the club said. In sharp contrast, almost 46% of its members polled last January projected higher levels of investments in 2005.

Beg your pardon? Fifty-four percent now expect investments to fall; that means 46% expect investments to keep steady or rise. But in January, 46% projected higher investments. WHERE IS THE SHARP CONTRAST (pardon my shouting)?????

But fewer companies now plan to make additional investments this year, from over 47% of companies in January to 39.4% in July, the club also said. However, the average amount of investments rose slightly to P300.2 million from P268.7 million.

Hmm. Fewer companies want to invest, but those that do, plan to invest more. Hardly sounds gloomy to me.

In short, I think our industry chiefs are largely going along business-as-usual route. A little disturbed by the political climate, sure, but no sign of impending catastrophe. Hey, there's money to be made in the country after all. Cheers!

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