The Q2 Business Expectation Survey (BES) released on Friday, May 27, showed that the overall confidence index (CI) rose to 48.7% from 41.9% for Q1 2016.
While the result is a notable improvement from the previous quarter, it didn't surpass the two-year high of 51.9% recorded at the end of 2015.
The CI is computed as the percentage of firms that answered in the affirmative less the percentage of firms that answered in the negative on a number of set indicators.
The BSP noted that strong election spending and the favorable summer weather with the bump in tourism it brings contributed heavily to that optimism.
Election spending was seen as a major factor in the 6.9% growth in Q1 and Socioeconomic Planning Secretary Emmanuel Esguerra said that the boost is generally felt even more in Q2.
The business community also cited as reasons for optimism the introduction of new strategies and processes coupled with the expansion of new product lines and the improving conditions in the local economy as well as elsewhere in Asia.
The country's positive outlook was mirrored in the improving business outlook in South Korea, Canada, France, and Netherlands, the BSP noted.
The outlook in other big economies deteriorated, however, particularly in the US, UK, Germany, China, and Australia.
The central bank added that stable macro-economic policies as well as sustained foreign investment flows also boosted confidence.
Services and trading firms most positive
Business sentiment was generally upbeat across sectors for Q2 with the exception of the construction sector which turned less favorable although it still remained positive.
The BSP said that the lull in construction activities might be due to the wait-and-see attitude of businesses during the transition period to the new administration.
Firms in the service sector led the optimistic outlook due to the usual uptick in demand during summer and harvest seasons coupled with increased demand due to election spending, low oil prices, and new investment opportunities.
Optimism among companies in in the wholesale and retail trade sector also increased for Q2 which was attributed to more robust demand during summer and enrollment seasons and a more conscious effort to achieve target sales in the automobile industry.
Industrial firms' outlook was also bullish for the current quarter, particularly in the mining and quarrying and manufacturing sub-sectors driven by expectations of higher election-related production activities (such as printing/manufacturing of campaign materials and giveaways).
The BSP also pointed out that firms involved in international commodity trading turned broadly more favorable for Q2 especially among importers and domestic-oriented firms.
On the other hand, the outlook of exporters also improved while that of dual-activity firms was broadly steady.
The financial conditions index also rebounded to 1.3% for Q2 from -0.1% in the previous quarter.
For the quarter ahead or Q3 2016, the BSP said that business optimism remained high although the outcome was lower compared to the previous quarter's results, with the CI declining to 45.3 % from 49.6%.
Respondents pointed to the interruption of business activities during the rainy season, lower consumer demand as households prioritize enrollment expenses, and expectations of higher oil prices as the main reason behind this.
The employment outlook index for the next quarter declined to 23.8% from 27.2% in the last quarter’s survey.
This indicates that more firms will continue to hire new employees than those that said otherwise, the BSP said, although the number of new hires could decrease compared to the previous quarter's survey.
The BSP added that the percentage of businesses with expansion plans in the industry sector for Q3 fell from to 30.3% from 31.3% a quarter ago, consistent with the lower outlook in the industry sector for the next quarter.
The Q2 BES was conducted from April 1 to May 17 of this year with 1,482 firms surveyed nationwide. – Rappler.com