OPTIMISM among mid-market business leaders in the Philippines climbed to 71% during the first half of 2023 (up 6% compared to H2-22) as inflation began to ease, according to Grant Thornton’s International Business Report (IBR), which tracks sentiment among global mid-market business leaders.
The climb in optimism has been driven by record numbers of mid-market business leaders expecting increases in profitability up 83% and revenue from exports up 55%, with the exception of selling prices which saw a decline from 63% to 61%.
One explanation for the expected increase in profitability is the record number of leaders expecting an increase in exports over the next 12 months – from 43% in the second half of 2022 to 55% in the first half of 2023. Those expecting to increase revenue from non-domestic markets was also up 50% from 39% as well as those expecting to increase the number of countries they sell to – from 41% to 53%.
Investment intentions reach new highs
The future does not appear to be completely technology-dependent with 66% of business leaders expecting to increase investment in staff skills. Intention to invest in technology went down to 63% from 65% despite the increased optimism of other global leaders. Investment intentions are up for research and development (from 65% to 74%) and new buildings (from 48% to 57%), yet there is a decline in plant and machinery from 62% to 55%.
While the International Monetary Fund (IMF) recently commented that the rise in central bank interest rates to fight inflation around the world ‘continues to weigh on economic activity’, mid-market business leaders appear to believe these actions are working and the end of rising interest rates may be in sight, explaining their increased optimism for the next 12 months.
As the IMF pointed out in its most recent World Economic Outlook, the global economy has shown near-term resilience, however, there remain a number of persistent challenges. Economic uncertainty remains the leading constraint identified by the country’s mid-market business leaders in Grant Thornton’s IBR, according to 52% of respondents.
While the number of executives highlighting constraints has fallen across the board, these still remain significantly above pre-pandemic averages. For example, those identifying energy costs as a constraint fell to 48% from 68% (compared to a pre-pandemic average of 39%). Concerns over availability of skilled workers fell to 48% from 52% and labour costs fell to 54% from 60% during H1 2023. Transport infrastructure was down to 45% from 50%.
Although the impact of regulation and red tape dropped to 45% from 60%, there are still growing concerns over a shortage of finance which increased to 51% from 45%.
Romualdo V. Murcia III, Chairman and Managing Partner of P&A Grant Thornton, commented: “CEOs around the world are under pressure like never before. They had to re-engineer business models and supply chains during the pandemic. Now they are doing it again in the face of rising interest rates, the arrival of AI, and the ever-increasing demands of ESG. This is why it makes complete sense that we can see concerns over business constraints at historically high levels (although softening) along with rising optimism.
It is also little surprise that we are seeing record levels of investment intentions from mid-market businesses. They know they need to adapt – again – to a changing business landscape. Choosing the right investments, and the right markets to move into is key, especially when you never know what crisis might round the next corner. It is the perennial challenge for any CEO to ensure they respond appropriately to changing market dynamics, but not overreact.”
