PH business confidence in Q3 hits record high despite dip from Q2

RAINED ON. Business confidence took a slight hit for Q3 based largely on the dreary weather that is expected to dampen consumer demand. File photo by Mark Cristino/Rappler

RAINED ON. Business confidence took a slight hit for Q3 based largely on the dreary weather that is expected to dampen consumer demand.

File photo by Mark Cristino/Rappler

MANILA, Philippines – Despite stellar economic growth in the first half of this year, the local business community's confidence is down for the third quarter, according to the Bangko Sentral ng Pilipinas.

The Q3 Business Expectation Survey (BES) released on Friday, August 26, showed that the overall confidence index (CI) declined to 45.4% from 48.7% in the Q2 2016 survey.

The BSP noted, however, that it was the highest third quarter reading of all time.

While the number of optimists declined, they still outnumbered pessimists during the quarter. 

The main reasons for declining optimism, the BSP said, were the impending rainy season, a drop in demand during the planting and closed milling seasons, a drop in consumption as households prioritize enrollment expenses, and implementation of stricter new mining policies.

International concerns were also a factor as respondents cited concerns over a weak global economy, which has weakened Philippine exports in the first half of the year.

Despite weak exports, the outlook of companies involved in export activities and dual-activity (both import and export) improved for the third quarter.

The dip in confidence of the local business community follows those in the United States, United Kingdom, Germany, and Hong Kong. Business confidence also  dropped in those areas for the third quarter, in contrast to the more bullish views of those in France, Italy, South Korea, India, and Switzerland, the central bank noted.

Optimism for end of the year

Business expectations for the fourth quarter are more optimistic, with the CI rising to 56.8% from 45.3% in the previous quarter's survey results. The BSP said this could suggest that growth will pick up in the last quarter of 2016.

Increased optimism for the last quarter is predicated on increased demand for the holidays, increase in orders and projects, and the opening of fishing operations in October.

The new administration's promise of increased infrastructure spending under the public-private partnership (PPP) program also plays a large part in this.

Experts have pointed out that while growth will taper off slightly in the second half of 2016 due to the absence of the election boost felt in the first two quarters, the economy is still comfortably on track to hit at least 6% growth. (READ: Economists upbeat on PH prospects for 2nd half of 2016)

Much of how growth pans out in the next 6 months, economists say, will depend largely on the government's ability to push through with plans to increase spending.

Industrial and utility firms pessimistic

Industrial and utility firms were less optimistic for the third quarter due to expected disruptions caused by the rainy season, stiffer competition, and decrease in sales receipts of energy firms with the decline in power rates.

Agriculture firms and the fishery and forestry sectors are optimistic as the  El Niño phenomenon finally draws to a close.

Heavy rains in the third quarter dampened the expectations of retail and trade firms, as well as the services sector.

The real estate and business subsectors anticipated an increase in demand for industrial and commercial real estate, and credit and investment information.  Firms in the construction sector were also upbeat, expecting faster rollout of infrastructure projects later in the year.

Steady employment, financing

Despite the dimmer outlook, the employment outlook index in the third quarter was steady at 23.6% from 23.8% a quarter ago. This indicates that there are more firms that will continue to hire new employees in the third quarter than those that would not.

Similarly, the average capacity utilization for the third quarter was higher at 74.9% from 74% in the second quarter.

More firms also expect their financing requirements to be met through available credit.

Businesses expected inflation to remain low at 1.5% for the third quarter and 1.6% in the last quarter. They expect the peso to weaken in the third quarter, but to rebound in the fourth quarter. They also expect higher interest rates in the second half of the year.

The Q3 2016 BES was conducted between July 1 and August 12, among 1,474 firms nationwide. – Rappler.com