RP Based Company Expect Increase

Philippine-based companies expect to increase sales, profits and inventory in the second quarter amid heavy election spending, along with efforts of the outgoing administration to finish building projects, a survey by business intelligence provider Dun & Bradstreet showed.

Overall, however, the business optimism index declined by a point to 32 for the next quarter, as businesses expect prices of their products to slide due to stiff competition from foreigners and fewer orders. They are also unlikely to hire as many workers as in this quarter.

"The latest business optimism index showed that for the second quarter, volume of sales, net profit and inventory improved by 4, 8 and 10 points, respectively, from the first-quarter level," D&B said.

But the index for selling price and expected orders declined by 7 and 5 points, respectively. The employment index also slid by 12 points, the survey showed. The three indices were still positive, implying moderate gains for April to June.

The survey, conducted among 251 companies and 97 firms under the Philippine Economic Zone Authority, measured growth in eight sectors — construction; manufacturing durables; manufacturing nondurables; transport, communication, and utilities; wholesale; finance, insurance and real estate; services; and retail.

The index for second-quarter volume of sales is projected to increase by four points to 56 points from the first quarter, with the biggest jump seen in construction; transport, communication and utilities; and retail.

Construction firms will likely benefit the most from higher earnings, posting a 60-point increase to 80 index points.

Stable prices
University of Asia and the Pacific economist Victor A. Abola, who interpreted the D&B survey results, said demand would be supported by more money sent home by Filipino workers abroad, increased orders from the country’s trading partners abroad, and stable consumer prices.

"Inflation decelerated from 4.4 percent in December to 4.2 in February. Second-quarter [inflation] should range from 4.2-4.6 percent with very slight acceleration," he told reporters.

But new orders are likely to slip except for construction companies, as the election season ends in the second quarter. "Companies will start relying on organic growth for new orders," Abola said.

He noted that while election spending contributes only half-a-point to total economic output, "it has a multiplier effect on subsequent quarters."

Meanwhile, as the school year starts in the middle of the year, companies are expected to build up inventory, except those in the retail and transport, communication, and utility sectors.

El Niño
Abola expects economic growth to be sustained in the third quarter, as demand for residential units and steady infrastructure development continue. The economist eyes as much as 4.2 percent growth this year — 0.4 point higher than his earlier forecast — despite crop damage from an El Niño-induced drought.

"We are coming from a very low base last year," Abola pointed out, adding that despite billions of pesos worth of agriculture damage, the economy would benefit from the rebound of industries and services.

"Of course, [there is also] election spending, exports, and remittances [from Filipinos abroad]," he said. The D&B business optimism index excluded the agriculture sector.

"The agriculture sector is not very large," Abola said, noting that the economy could still grow by 3.5 percent in the first two quarters despite crop losses. Still, he said, growth would be higher this year if not for agricultural damages from the dry spell and the floods caused by twin storms in the latter part of 2009.

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