Monday, 13 July 2009

Upbeat on the second quarter

The Entrepreneur
Manny Villar
Business Mirror

I’M confident the performance of the economy will be better in the second quarter of this year. That is, better than the 0.4-percent growth in terms of gross domestic product (GDP) in the first quarter.

There are signals, but the most significant improvement is the debate over the state of the economy.

While before there was unanimity in predicting that the global economy was going down, now we have mixed observations and forecasts. Some people say the recession has not hit bottom, while others say the worst is over and recovery is beginning.

In Britain, the British Chamber of Commerce (BCC) said recently that for the UK economy the worst is over, although recovery is not guaranteed. Results from a BCC survey for the second quarter showed improvements in most key indicators in the manufacturing and service sectors.

BCC chief economist David Kern said: “Recovery is now possible, but it is not yet secure. Further corrective measures are still needed to support the economy. The marked improvement in confidence, albeit from exceptionally low levels, is welcome. However, these gains can only be sustained if the economy continues to stabilize and the recession ends.”

In the United States, President Barack Obama said the nation’s latest unemployment figures were sobering, but that the economic recession was slowing down. Unemployment climbed to 9.5 percent in June from 9.4 percent in May, but the number of workers filing initial jobless was decreasing. A new national poll indicated that nearly half of all Americans think the economy has stabilized, although only one in eight thinks recovery has started.

Obama has said recovery will take time, predicting the unemployment rate will climb above 10 percent before reversing. “I’m absolutely confident, we’re not only going to recover from this recession in the short term, but we’re going to prosper in the long term,” he said.

In the Philippines, even the World Bank and the Asian Development Bank (ADB) see things differently. The World Bank expects the Philippine economy to go into recession this year, with GDP contracting by 0.5 percent.

The ADB, on the other hand, said the economy would maintain positive GDP growth in 2009, citing the continued remittance growth, improvement in business confidence, and turnaround in key exports.

The latest investor survey conducted by ING Bank showed investors are now more optimistic about the Philippines compared to other countries in Asia.

The Philippines posted the highest improvement in investor sentiment among Asian countries for the third quarter of 2008, based on ING Bank’s latest Investor Dashboard Sentiment Index. Philippine investor sentiment rose 25 percent to 138 for the third quarter this year from 110 for the second quarter, the highest increase among regional markets surveyed.

The Philippines currently hovers above the optimistic zone, despite its marginal year-on-year decline of 7 percent. Philippine investors are generally more optimistic, as indicated by 59 percent of those surveyed looking forward to an improvement in the economy in the fourth quarter of 2008.

While only 44 percent say that the stock market will rise in the fourth quarter, 66 percent believe that their return on investment will go up in the same period.

“Given that investors in the Philippines are generally conservative and have relatively less exposure to overseas investments, there are significantly fewer investors here who feel the impact of the global crisis on their investments,” ING Bank Philippines managing director Cesar Zulueta said in a statement.

A separate survey conducted by the Bangko Sentral ng Pilipinas showed similar results as the ING study.

In its Business Expectation Survey (BES), the Bangko Sentral said the overall Confidence Index improved to negative 2.6 percent in the second quarter from negative 23.9 percent in the first quarter. The index is the percentage of firms that answered in the affirmative about their confidence level minus the percentage of firms that answered in the negative.

The index continued to improve to positive territory for the coming third quarter at 13.7 percent for that period, or 20.2 index points higher on a quarter-on-quarter basis. That means respondents expected an economic turnaround to start in the third quarter of 2009.

For the third quarter, all sectors anticipated an economic turnaround, as all industries posted positive indices.

The construction sector was most optimistic with a Confidence Index of 20.0 percent, most likely because it expected to benefit from government infrastructure projects that form part of the 2009 stimulus package.

The wholesale and retail trade sector was the least optimistic with an index of 10.3 percent.

The growing optimism was due to the confidence-boosting measures taken by the United States and the fiscal-stimulus package committed by G-20, which groups the world’s 20 wealthiest countries.

Locally, the factors that boost optimism include the enactment of the 2009 budget, the government’s stimulus plan, the lowering of interest rates, decline in inflation and robust remittances.

The worst-affected sector of the economy is the export sector, which has been dropping in double digits. During the first four months of 2009 exports fell by 36.4 percent.

The Bangko Sentral has forecast a 13-percent to 15-percent drop this year, but last month it said the rate of decline could be lower, mainly because of a pickup in orders for electronic products in the second quarter.

Electronics remains the Philippines’ biggest export products.

In conclusion, two-thirds of the world is still in recession. That’s the bad news. The good news is that gloom is no longer the universal mood.

The global economy may have hit bottom, but the bottom may be long, which means it will not be a quick recovery. We may face a long struggle to get out of the bottom, but at least it’s no longer a free fall.

For the Philippines, I think we overreacted to the global crisis. We were not hit hard, but we have not forgotten the 1998 crisis.

Banks and other companies became overly conservative, and that contributed to the negative environment in the first quarter.

The stock market has been performing well compared to markets in other countries, and I hope it will sustain its performance. An added boost is the elimination of the documentary stamp tax on secondary stock transactions.

I don’t know about other industries, but our real-estate industry is very strong, and that means construction, a big job generator and economic activity multiplier, is also strong.

And so, I am confident about the second quarter, and for the rest of the year I don’t think we are teetering on recession.

Still, the government should continue spending, particularly on infrastructure, to stimulate the economy. The private sector is already doing its part by continuing to expand, or at least maintaining capacity.

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