Bright prospects for Q2, Prices seen to remain steady - World’s No. 1 business information provider launches the Business Optimism Index

Manila Philippines, 25 March 2010 – Philippine businesses expect to gain momentum in economic activity for the second quarter as indices for Volume of Sales, Net Profit and Inventory showed marked improvement from the first quarter, according to the latest result of the D&B Business Optimism Index (BOI) produced by the leading global information provider Dun & Bradstreet.
 
The bright prospects validate widespread expectation of economic gains amidst heavy election spending along with the rush to complete government-funded infrastructure projects, continuing growth in Overseas Filipino Workers (OFWs) remittances, increase in exports and the relatively tame inflation outlook at 4.3% to 4.6% (year-on-year) for the quarter.
 
On the other hand, prices are seen to remain steady with selling price across all sectors registering a 7-point decline from +17% in the first quarter to +10% in the second quarter. This is mainly due to a decline in the pricing of the manufacturing sector (non-durables) likely as a result of global free trade agreements.
 
The latest BOI 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.
 
The foreseen gains in sales also translated into a more positive outlook towards net profits and inventories. These expectations were supported by positive indices in expected orders, selling prices, and employment, even though these latter set of indices showed a slowdown (5, 7, 12 points, respectively) from the previous quarter.
 
Thus, while the top and bottom line outlooks brightened, selling price hikes, new orders build-up and employment gains are likely moderate.
 
The release of the index results marked the official launch by D&B Asia Pacific Partnerships of the Philippine BOI which measures business confidence in the economy and is designed to capture business expectations. It is considered as one of the most effective ways to track how the business community perceives the business environment, and where they think it is moving.
 
D&B, the world’s leading business information provider, produces the BOI every quarter. Each quarter, at least 200 business owners and senior executives in major industry sectors across the country are asked if they expect increases, decreases or no changes in their upcoming quarterly Volume of Sales, Net Profit, Employment, New Orders, Inventories and Selling Prices.
 
The index relies on Dun and Bradstreet’s extensive and up-to-date commercial database of business information gathered from over 150 million companies covering more than 200 countries.
 
D&B produces the BOI in several APAC like Vietnam, Malaysia, Indonesia, India, Singapore, Australia, Hong Kong and Thailand. In countries where it has been produced for some years, the BOI has proven to be a reliable predictor of moves in the economy.
 
Comparing BOI Philippines Index with the Monthly Integrated Survey of Selected Industries (MISSI) and with the Industrial Production Index, the BOI indicated a predictive relationship between Volume of Sales and New Orders. The same was true when comparing the BOI Index to specific sectors on the National Income Accounts (NIA). In time, as in other countries where D&B publishes the BOI, it is expected that the Philippine BOI will corroborate movements in the economy accurately.
 
“Our process of converting hard commercial data into useful and relevant insights becomes an integral part of decision-making. It enhances the way that (businesses) make effective commercial decisions, be it in risk management or sales or marketing,” said Nicholas Teoh, Vice President of D&B Asia Pacific Partnerships.
 
“The BOI helps business leaders make decisions based on future business expectations. It captures and measures the pulse of the business community each quarter and serves as a reliable benchmark for investors and business leaders,” he further noted.
 
The BOI for volume of sales moved up to net 56% from 52% in the first quarter. Profit expectations for the second quarter rose by 8 points to 53% from 45% in the first quarter.
 
Inventory rose to 24% in the latest BOI results as against 13% in the first quarter. All sectors, except retail, registered positive increases. D&B analysts attribute this to the anticipated rise in demand starting the new school year in June as well as the income in the hands of consumers due to election spending and OFW remittances that both peak in May.
 
However, new orders for the second quarter are expected to slow down by 6 percentage points from +44% in the first quarter to +38% in the second quarter.
 
While three main sectors look forward to a higher employment outlook in the second quarter, percentage points in other sectors were down, thus registering a drop of 12 percentage points for employment in the second quarter to +13% from +25% in the first quarter.
 
Highest gainer in volume of sales in latest BOI is the construction sector which posted +80% from +25% in the first quarter. The bright outlook emanates from the rush to complete infrastructure projects of the government and robust demand for housing.
 
Second highest gainer is the Transport, Communications and Utilities (TCU), which increased by 28 percentage points from +36% in the first quarter to +64% in the latest BOI.
 
While coming in second in volume of sales expectation at +70%, Finance, Insurance and Real Estate (FIR) registered a decrease 6 percentage points from the +76% in the first quarter.