TODAY'S WORLD

By NOEL G. REYES, Research Head

Local businessmen in late May felt more confident about the economy's near-term prospects as they lauded the government's handling of the outbreak of a deadly disease, according to the latest poll done by the New York-based RoperASW (formerly Audits & Surveys Worldwide) for BusinessWorld. As a result, the Business Confidence Index (BCI) climbed 7.7 points to the year's current high of 90.6.

The BCI, a composite measure of how businessmen perceive the current economic and political environment and how they assess the economy's direction over a six-month horizon, is a joint project between BusinessWorld and RoperASW. The latter conducts a survey each month, covering 300 respondents who work for the Top 700 corporations in the country. The latest poll was conducted from May 28 to June 4.

The government's successful containment of the deadly SARS (severe acute respiratory syndrome) epidemic, which has killed hundreds across the globe, "was a big positive" in boosting the business community's confidence, the chief economist of a commercial bank said.

Other contributing factors, he added, would be the spillover of positive sentiment from the speedy resolution of the war in Iraq as well as the higher-than-expected economic growth figures for the first quarter.

On May 21, the World Health Organization (WHO) removed the Philippines from its list of areas with recent local transmission of the SARS virus. Prior to the delisting, the Philippines reported 12 SARS cases, including two deaths. Prompt and effective quarantine measures successfully contained the disease. It was feared that SARS would have adversely affected the retail industry, tourism, investment inflows and the deployment of Filipino workers abroad.

With the containment of SARS, the government saw its performance rating among businessmen rise to a 10-month high. Nearly 49% of those polled rated the government as "doing a better job than a year ago" -- the highest since last July's 54%. Furthermore, when asked to rate the government's handling of the SARS epidemic, almost 76% rated the government's performance as "good."

LINGERING FEARS

However, businessmen were also wary of the SARS virus' lingering effects on the economy. Close to 78% said they anticipate the SARS outbreak to "have an adverse effect on the country's growth prospects this year."

Partial signs of the disease's adverse effects may be seen in the country's latest trade figures. Export receipts dipped 1.8% in April, breaking a winning streak of 12 consecutive months of positive year-on-year growth. Economists said the dip was not surprising as the SARS epidemic was expected slow down the global economy. Japan and US, the country's top trading partners, continue to suffer from anemic growth while other major top export markets -- including Hong Kong, Singapore, Taiwan and the People's Republic of China -- had their economies badly hit by SARS.

Nonetheless, the Philippines recorded a surprising 4.5% economic expansion in the first quarter, hitting the high end of the government's forecast and outpacing the 3.8% growth posted in the first quarter of 2002. The expansion came amid the occurrence of the El Ni�o weather phenomenon, the war in Iraq, SARS and peace and order problems in Mindanao, government officials pointed out.

The government forecasts the domestic economy to grow this year by 4.2% to 5.2%.

Reflective of the first-quarter figures, the number of respondents who said "current business is good" rose 4.0 percentage points to 29%, the highest in 10 months, while those who said it is "bad" slid 4.3% points to 50%.

UNCERTAINTIES

"As to sustainability," said the bank economist, "we have to look at the risk factors: El Ni�o is no longer a factor, the Middle East war and SARS are also gone, which just leaves the domestic problem of peace and order in Mindanao and the coming presidential elections" next year.

Uncertainty as to who is leading the 2004 presidential elections "would put investments on hold," he pointed out. "No candidate has, as yet, has taken the lead."

Following her triumphant state visit to the United States, President Gloria Macapagal-Arroyo is being egged on by supporters to run for office next year, notwithstanding her disavowal of further political ambitions. Whether this would solve the uncertainty or create new problems for the economy remains a big question.

"Her running presents risks," said the bank economist. "It all depends on the economic numbers that would be coming out in the coming months -- if the numbers continue to be good, then they could establish the rationale for her candidacy, in order for her to continue her economic program."

For the moment, at least, the latest survey results would indicate the business community leaning towards support of her candidacy. Those who agreed that "the economy would prosper under President Arroyo's" leadership swelled 12.7 percentage points to 51%, the highest in 10 months. At the same time, businessmen who said "the President is doing a good job" climbed nearly 10 points to 62%, another 10-month high. Lastly, those who said they "believe in the sincerity of President Arroyo" rose 7.7 points to 65%, also the highest in 10 months.

Overall, the present situation index, which measures how businessmen rate the government and their current economic condition, surged 13.2 points to 92.1, the highest since October's 95.4 index level. The future expectations index, which gauges the business community's sentiment about the economy's prospects over the next six months, rose by a lesser 4.2 points to 89.7, still below January's level.

Some 39% -- slightly up from the prior survey's 32% and still below January's 46% -- said they see the economy improving over the next six months. About 24% (down from 33.3%) said the economy would "get worse."

The improving confidence led 21% of respondents (up from 16%) to indicate that they would "hire more" people over the next six months, and 25% (up from 14%) said they would "invest more" over the same period.

Higher confidence also boosted the number of respondents bullish on the stock market to 31%, up from 23%. The Philippine Stock Exchange composite index (Phisix), the local equities market benchmark, last week stood at an eight-month high of 1,166, ahead by 15% from last year's closing.

BULLISH ON THE PESO

Businessmen were likewise relatively bullish on the peso, with 35% (up from 32%) of the respondents saying they see the local currency improving over the next six months.

More tellingly, those who said they see the peso "worsening" dropped from 43% to 26%.

After hitting a year's high of less than PhP52 to the US dollar at the start of May, the peso has lately depreciated to PhP53.45. On a year-to-date basis, however, the peso remains within striking distance of last year's closing of PhP53.30 and below the year's low point of PhP55.16 posted in mid-March.