Firms upbeat on final quarter of 2010

COMPANY OWNERS and executives have become even more optimistic of business prospects, anticipating sales and profits to go up in the last quarter of the year against a backdrop of expanding economic output, export growth, low inflation, and bullish financial markets.

Research outfit Dun & Bradstreet’s quarterly business optimism index went up by two percentage points to 45% for the fourth quarter, from 43% in the third quarter.

The Business Optimism Index, which polled 260 nonagricultural firms last month, represents the difference between the percentage of respondents expecting increases in six key indicators and those expecting decreases.

Firms in construction; manufacture of consumer and durable goods; transportation, communication and utilities; wholesale; finance, insurance and real estate; services; and retail were asked on their expectations in six areas — volume of sales, net profits, selling prices, new orders, inventories, and employees.

Economist Victor A. Abola, who was tapped to present Dun & Bradstreet’s findings yesterday, said firms were anticipating higher profits because of higher volumes, amid expectations of lower prices and easing inflation.

Exporters have apparently factored in the effect of the stronger peso as most of the 80 ecozone respondents still expected sales and profits to go up.

Still, “the strong peso will reduce the stimulative effect of [remittances], and it will make business process outsourcing firms and exports of goods and services less competitive,” Mr. Abola told a press briefing.

Sought for comment, Jesus L. Arranza, head of the Federation of Philippine Industries, said firms generally were able to adjust to the stronger peso as costs had gone down for those using imported raw materials and had taken out dollar loans. Even consumers and families dependent on remittances should benefit from stable prices of goods.

“Only those who do not know how to play the game will lose,” he said.

Mr. Abola made a quarter-on-quarter analysis instead of comparing the fourth-quarter index to last year’s, pointing to the devastation caused by storms Ondoy and Pepeng in late 2009 as “intervening events.”

Dun & Bradstreet’s volume of sales subindex went up by six points to 70%, while that for net profits went up by 13 points to 63%. More firms expect a hike in new orders, with that subindex going up by four points to 33%.

The proportion of firms expecting to hire more workers was lower — the employment subindex went down by nine points to 15%. Inventory levels improved by three points but the subindex was in negative territory at -10%. Selling prices were at -1%, down by 12 points.

Only the construction sector is expecting a slowdown in sales growth due to fewer public works projects, Mr. Abola noted. Wholesalers, durable good manufacturers, and service providers are the most bullish on profits, with over half anticipating growth.

A boom in exports has caused firms registered with the Philippine Economic Zone Authority to become more optimistic than all businesses in general, at 48% versus 45%, Mr. Abola also said. This should be sustainable as export growth has been coming from East and Southeast Asian markets, he added.

As a result, the economy should grow by more than 6% in the last two quarters, he said. Gross domestic product (GDP) jumped by 7.9% in the first half, supported by exports.

Even the stock market bull run has a “strong base,” Mr. Abola said, as the country actually has a high savings rate of 27% of gross national product.

“Using this approach, savings has been exceeding investments since 2000. That is creating liquidity… Where will the money go? It will go to the financial system,” he said. –FELIPE F. SALVOSA II, Associate Editor, BUsinessworld