By Riza Lozada
The Marawi City crisis and martial law in Mindanao were among the factors cited for a dip in business sentiment for the third quarter, according to the periodic Business Expectation Survey of the Bangko Sentral ng Pilipinas (BSP).
The survey indicated optimism on the economy was reduced in the third quarter, with the overall confidence index (CI) declining to 37.9 percent from 43 percent the previous quarter. The BSP, nonetheless, said optimism still predominates in the quarter.
The confidence index is computed as the percentage of firms that answered in the affirmative less the percentage of firms that answered in the negative on a set of questions related to the outlook for a particular quarter.
Respondents cited as factors for the less buoyant outlook, aside from the Marawi City crisis and the declaration of martial law in Mindanao, the seasonal factors such as the slowdown of business activities during the rainy season, slack in demand during the planting and closed milling season, as well as the closed fishing season in Davao Gulf from July to September.
The respondents said martial law in Mindanao affected people’s mobility to and in Mindanao. Also cited as factors for the reduced positive sentiment are the weak peso, higher prices, stiffer competition, and damages and power outages caused by the July 6 earthquake in the Visayas.
The BSP added the sentiment of businesses in the Philippines mirrored the less buoyant outlook in the country’s main markets such as the US, Canada, The Netherlands, New Zealand, and Thailand but in contrast to the more bullish views of those in Germany and Hong Kong and a steady outlook in France.
Better prognosis for rest of 2018
For the fourth quarter, business outlook turned more positive as the next quarter CI rose to 51.3 percent from 42.7 percent in the previous quarter’s survey results.
Respondents’ more positive outlook for last quarter was due to expectations of consumer demand rising during the holiday, harvest and milling seasons, continued rollout of government infrastructure and other development projects, further increase in orders and projects translating to higher volume of production, expansion of businesses and new product lines, introduction of new and enhanced business strategies and processes, expected favorable weather condition for agricultural products, and beneficial impact of the proposed tax reform program.
The sentiment of businesses involved in international commodity trading was broadly less favorable during the period as importers and domestic-oriented firms expected lower consumer demand during the rainy season.
Meanwhile, export firms’ outlook was more optimistic for the current quarter.
For the quarter ahead, the survey showed the outlook of importers and domestic-oriented firms turned more robust compared to that of the previous quarter.
The industry sector is more confident while the construction, trade and services sectors are less positive during the period, according to the survey. Business sentiment across sectors was less upbeat except for the industry sector particularly in the manufacturing sub-sector, whose views were more favorable for the current quarter.
Respondent firms in the manufacturing sub-sector cited improved market strategies and new product lines as reasons for their optimism, countering the less optimistic outlook of firms in the mining and quarrying, agriculture, fishery and forestry, and electricity, gas and water supply sub-sectors.
Meanwhile, construction firms’ outlook for the current quarter was less favorable due largely to the slowdown of construction activities during the rainy season. For the next quarter, the outlook across sectors and sub-sectors were generally more buoyant due to expected high consumer demand during the Christmas season, inflow of overseas Filipino workers (OFW) remittances, acceleration of infrastructure development projects and more investments.
The sentiment of the mining and quarrying, and agriculture, fishery and forestry sub-sectors, however, declined slightly for the next quarter due to lower metal prices and closed fishing season from July to September.
The outlook of firms about their own business operations remained positive despite being slightly lower in the third quarter compared with a quarter ago.
Industry and trading firms expected the volume of their business activities and total orders to grow at a slower rate for the third quarter relative to the previous quarter’s survey results.
In contrast, respondents in the construction and services sectors expected higher growth in their business operations for the same period. For the last quarter, firms across all sectors, except industry, expected the volume of their business activities to step up.
The employment outlook index for the next quarter improved due largely to the more positive sentiment of the services and wholesale and retail sectors offsetting the less optimistic outlook of the industry and construction sectors.
This suggests that more firms will continue to hire new employees than those that indicated otherwise.
The percentage of businesses with expansion plans in the industry sector for the third quarter fell slightly to 32.8 percent from 34.6 percent in the previous quarter.
Meanwhile, the average capacity utilization of factories during the period was slightly higher at 76.7 percent from 75.8 percent in the second quarter indicating sustained volume of business activity.
The financial conditions index improved but stayed in the negative territory at negative one percent compared to negative two in the previous quarter that means firms that expected tighter financial conditions outnumbered those that said otherwise.
The survey also indicated businessmen expected inflation to increase but to remain within target, the peso to further weaken, and interest rates to go up for the current and next quarters.
Inflationary expectations have slightly eased as the number that said so decreased from a quarter ago.
Businesses anticipated the rate of increase in commodity prices to stay within the government’s two to four percent inflation target range for 2017 and 2018, at 3.1 percent for the third quarter and 3.2 percent for the last quarter from 2.9 percent and 3 percent in the previous quarter’s survey results, respectively.
More respondents also anticipated the peso to depreciate for Q3 2017 and Q4 2017. Meanwhile, the percentage of respondents that expected higher interest rates decreased compared to those in the previous quarter’s survey.
The BSP said the survey was taken from July 3 to August 18 from 1,480 firms nationwide. “Respondents were drawn from the combined list of the Securities and Exchange Commission’s top 7,000 corporations in 2010 and Business World’s Top 1,000 corporations in 2015, consisting of 586 companies in the National Capital Region (NCR) and 894 firms in other areas of Luzon.