The Market Monitor Minding the Nation's Business
By Luis Leoncio
Business confidence rose to its highest level for the past two years as the economy maintained a healthy momentum coupled by an expected pickup in consumer spending in the runup to the elections next year.The closely watched overall confidence index (CI) grew to 51.3 percent in the third quarter of thre year, from 41.4 percent a year ago, according to the quarterly Business Expectation Survey (BES) of the Bangko Sentral ng Pilipinas (BSP).
The survey, however, showed that optimism is likely to taper off in the first quarter of 2016, as the CI for the start of next year fell from a year ago.For the first quarter, the CI dipped to 43.9 percent from 53.1 percent in the previous quarter’s survey.
The next quarter CI suggests that the optimists continued to outnumber the pessimists, but the number of respondents with favorable views declined relative to the previous quarter’s survey results, the BSP said.
Respondents attributed their less sanguine outlook for Q1 2016 to the typical slowdown in demand after the holiday season. Other reasons cited by firms were stiffer competition, concerns over the adverse effects of El Niño, and uncertainties in the global economy.
The BSP said in a statement that the result of the survey indicated more businesses were optimistic about the country’s economic prospects for the last quarter of the year.
The CI is the difference of respondents who expressed optimism less the number of pessimists.
Majority of the respondents expressed optimism, citing as factors the expected increase in consumer demand during the Christmas season as well as the main palay harvest and milling seasons; sustained increase in sales, orders and projects leading to a higher volume of production; expansion of businesses and new product lines; introduction of new and enhanced business strategies and processes; steady flow of overseas Filipinos’ remittances, especially during the holiday season; and election-related spending.
Businessmen also indicated a positive outlook due to expectations of brisker business after the country’s hosting of the Asia-Pacific Economic Cooperation (Apec) forum, higher disbursements for public infrastructure and other development projects, and the favorable macroeconomic conditions, particularly manageable inflation, low interest rates, and a stable peso.
The sentiment of businesses in the Philippines mirrored the buoyant business outlook in Australia, Japan and the euro Area, but in contrast to the weaker sentiment of businesses in the US, UK, China, Hong Kong, Germany, Russia, Indonesia, Singapore and India.
Outlook of importers and domestic-oriented firms turns more bullish, driven by demand in the domestic market.
Exporters and dual-activity firms’ sentiments were less optimistic for the current quarter. For the next quarter, importers, domestic-oriented and dual-activity firms turned less optimistic, while exporters’ outlook turned more upbeat, according to the survey.
Across sectors, the outlook of businesses was more sanguine for the final three months. Business confidence in the wholesale and retail trade, services and industry sectors improved while that in the construction sector remained steady.
For the next quarter, business confidence turned less optimistic across sectors, except for industry, which remained steady.
The services sector was also more upbeat during the quarter. Among its sub-sectors, hotels and restaurants posted the highest confidence index, with respondents attributing their optimism to expectations of more business opportunities in the last quarter of the year known as the convention season, as well as an increase in tourism activities with the recent holding of the Apec summit in the Manila.
Financial services remained buoyant as well, with respondents attributing their optimism to an increase in demand for credit by consumers and higher remittances from overseas Filipinos during the holiday season, and brisker business due to election-related spending.
The employment outlook index for the next quarter decreased to 19.5 percent from 22.3 percent in the last quarter’s survey, indicating that more firms will continue to hire new employees than those that said otherwise, although the number of new hires could decrease compared to the previous quarter’s survey, the BSP survey showed.
The percentage of businesses with expansion plans in the industry sector for the next quarter was broadly unchanged at 31.9 percent.
Meanwhile, average capacity utilization for the current quarter was higher at 77 percent from 76.2 percent a quarter ago.The financial conditions index reverted to negative territory at 0.7 percent for the final quarter from 1.1 percent in the previous quarter.
“This means that firms were more cautious regarding their financial conditions in the current quarter. Nonetheless, firms were of the view that their financing requirements could be met through available credit as respondents who reported easy access to credit exceeded those that said otherwise, even as the number that said so declined compared to that a quarter ago,” the BSP said.