Businesses still optimistic in Q3 at 34.4%

MANILA, Philippines – Businesses’ outlook on the economy continued to be favorable in the third quarter 2014 as the overall confidence index (CI) stayed in positive territory at 34.4%, according to the Bangko Sentral ng Pillipinas (BSP) Business Expectations Survey results released Friday, August 29.

The survey results came out following the August 28 government announcement that Philippine economic growth accelerated to 6.4% in the second quarter, the second fastest in Asia. The private sector took the lead as the economy recovered from a modest expansion of 5.6% in the first quarter, partly due to the impact of devastating natural disasters.

The current quarter reading, though, was lower compared to the 50.7% CI recorded in the Q2 2014 survey. This indicates that the number of optimists declined but continued to be greater than the number of pessimists during the quarter.

Respondents attributed their less buoyant outlook to expectations of:

The prevailing favorable macroeconomic conditions brought about by the steady growth of overseas Filipinos’ remittances, increase in investment inflows, and the expected roll-out of major public-private partnership (PPP) projects such as the North-South commuter rail and subway system mass transit loop also boosted business confidence for the next quarter.

Exporters, importers, businesses across sectors less optimistic

Exporters, dual-activity firms, and importers were less optimistic in the third quarter 2014 as a result of the expected typical low demand during the quarter, particularly in industrial production and consumer spending, and the disruption in business activities caused by the truck ban and port congestion issues, and higher cost of utilities.

Also, the outlook of businesses was less favorable across sectors in the third quarter. Construction firms’ outlook in the current quarter was less sanguine due largely to the slowdown of construction activities during the rainy season. Nonetheless, the construction sector registered the highest CI among sectors. Likewise, in view of the seasonal slack in demand and production activities in the third quarter, the outlook of the industry, services, and wholesale and retail trade sectors was less buoyant compared to a quarter ago.

Meanwhile, the outlook on the volume of business activity eased in the third quarter but turned more buoyant for the next quarter.  Moreover, firms’ expectations of increased hiring support the more upbeat outlook on business operations for the last quarter of the year.

The percentage of businesses with expansion plans in the industry sector increased to 34.2% from 30% in the previous quarter. Meanwhile, the average capacity utilization for the current quarter remained steady at 76.5% from 76.6% recorded a quarter ago.

Inflation within target

Respondents who expected inflation to go up in the current and next quarters increased compared to the previous quarter’s survey results.

Businesses, however, expected that the rate of increase in commodity prices is likely to remain well-anchored at 4.2% in both third and fourth quarters this year.

This is consistent with higher inflation expectations based on the results of the June 2014 BSP’s survey of private sector economists and the July 2014 Consensus Economics survey. Stronger inflationary pressures are expected to stem from higher-than-expected increases in food and oil prices, and increase in domestic liquidity.

Inflation shot up to a nearly 3-year high in July as millions of poor Filipinos endured steep price rises for essential foods, data from the government statistics agency showed on August 5.

Meanwhile, more respondents expected the peso to appreciate in the third and fourth quarters of 2014. Interest rates were also expected to increase in the current and next quarters.

Bullish for Q4

The sentiment of businesses in the Philippines mirrored the less bullish outlook in the United Kingdom, Canada, Germany, New Zealand, Singapore, Hong Kong, and India but was in contrast to the more buoyant views of those in the US and China.

For the fourth quarter this year, business outlook turned more upbeat as the next quarter index rose to 52.9% from 48.9% in the previous quarter’s survey.

Respondents’ more positive outlook in the next quarter was due to expectations of:

The third quarter 2014 BES was conducted from July 1 to August 15, 2014, with 1,527 firms surveyed nationwide. Rappler.com