4 reasons why businesses less optimistic in 1Q 2015

MANILA, Philippines – Overall confidence index (CI) slightly declined, as business optimism eased in the first quarter of 2015, the Bangko Sentral ng Pilipinas' (BSP) Business Expectations Survey revealed.

CI dropped to 45.2% from 48.3% for the fourth quarter 2014.

Respondents attributed their less upbeat quarter-on-quarter outlook to the following: 

The sentiment of businesses in the Philippines mirrored the less sanguine business outlook in the United Kingdom, Singapore, Hong Kong, and India, and contrasting the more buoyant views of those in the US, Canada, and Germany.

Mixed sentiments

Across trade groups, businesses involved in international commodity trading (exporters and dual-activity firms/export-import firms) remained optimistic for both the first and second quarters of 2015. Firms catering to domestic activities (domestic-oriented firms and importers) have less favorable expectations for the current quarter, but their outlook turned more upbeat for the quarter ahead.

Business sentiment was mixed across sectors for the first quarter this year. The optimism in the wholesale and retail trade and services sectors remained high but lower compared to that in the previous quarter. The industry and construction sectors registered a more buoyant outlook.

The less optimistic outlook of the wholesale and retail trade sector stemmed from expectations of a slack in consumer demand and business activities after the Christmas season; their concern over the continued effects of past natural calamities, particularly on agriculture; and stiffer domestic competition emanating from the construction of new malls.

The services sector, meanwhile, was slightly less optimistic due to seasonal slack in demand for hotels and restaurants; renting and business activities; and real estate post-holiday season.

Industry firms’ outlook turned more upbeat, particularly in the manufacturing sub-sector, driven by the continuation of existing projects/order bookings; innovations in product design and quality; and the successive rollback of oil prices that consequently lower firms’ production costs and increase consumers’ disposable income.

The construction sector, the most bullish, noted that low prices of fuel and construction materials as well as expectations of favorable business conditions help sustain demand for construction services (both public and private), with new projects in the pipeline.

The outlook on volume of total orders was mixed across sectors: edging higher for the construction sector, remaining steady for industry and less robust for services and wholesale and retail trade.

The outlook of firms on the volume of business activity for the quarter ahead turned more optimistic across sectors and sub-sectors, except that for the mining and quarrying sub-sector which was less positive. Business outlook was at an all-time high for the services sector.

About one in 3 respondent firms in the industry sector or 32.5% indicated expansion plans for the second quarter 2015. Meanwhile, the average capacity utilization for the current quarter remained steady at 76.8% from 76.9% a quarter ago.

Also, firms that expected better financial conditions outnumbered those that said otherwise during the quarter. They also expect that their financing requirements could be met through available credit as more respondents continued to report easy access to credit.

Also, more respondents expected inflation to decrease in the current quarter. Businesses expected that the rate of increase in commodity prices is likely to remain low and within the 2% to 4% target range in 2015, at 3.9% for both the first and second quarters 2015, compared to 4.3% in the previous quarter’s survey results. Meanwhile, more respondents expected the peso to appreciate and interest rates to increase for both quarters.

Bullish for the second quarter

Business confidence turns bullish for the second quarter with the next quarter CI jumping to 58.2% from 43.1% in the last survey.

Respondents cited the following factors as reasons behind their more bullish outlook:

Their more positive outlook was further driven by expectations of an acceleration in the rollout of infrastructure and other development projects under the public-private partnership (PPP) program and the favorable macroeconomic conditions in the country (particularly, stable inflation and low interest rates); sustained foreign investment inflows, and the steady stream of overseas Filipinos’ remittances.

BSP’s Business Expectations Survey for the first quarter was conducted from January 5 to February 10, 2015, with 1,523 firms surveyed nationwide. Rappler.com