Business confidence down due to election jitters—BSP

Business confidence is on a slide, according to a Bangko Sentral ng Pilipinas (BSP) quarterly survey, which showed that the overall confidence index (CI) fell to 41.9 percent in the first quarter from 51.3 percent in the final quarter of last year, partly due to uncertainties as a result of the expected change in administration after the national elections in May. 

Respondents to the BSP’s Business Expectation Survey (BES) said that aside from the “wait-and-see attitude” of businesses with regard to the outcome of the 2016 national and local elections, other factors causing uncertainties were the usual slowdown in business activity and moderation of consumer demand after the holiday season; the decline in global oil prices and other commodities; the growing concerns about the outlook for global growth amid continued weakness in China; the adverse effects of El Niño on crop production and businesses; strong market competition, and the bearish trend in the stock market.

The BES was conducted from January 5 to February 17. A total of 1,539 firms were surveyed 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 1000 Corporations in 2014, consisting of 588 companies in national capital region and 951 firms elsewhere covering all 18 regions nationwide.

The BSP said the result indicated that the number of optimists declined but continued to be greater than the number of pessimists during 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 with respect to their views on a given indicator,” the BSP noted.

The sentiment of businesses in the Philippines mirrored the less sanguine business outlook in the United Kingdom, Germany, China, and Korea, but was in contrast to the more buoyant views of those in the United States, Canada, France, Netherlands, and Russia.

Meanwhile, a more pessimistic outlook was registered by businesses in Hong Kong SAR and Singapore.

For the next quarter, business outlook was better with the CI rising to 49.6 percent from 43.9 percent in the last quarter’s survey.

The next quarter’s CI suggests that economic growth could be higher for the next quarter. Respondents cited the following factors as reasons behind their more bullish outlook: election-related spending in the run-up to the elections in May; sustained increase in orders and projects leading to higher volume of production; anticipated increase in demand during summer (with the expected influx of both local and foreign tourists) and enrolment periods; introduction of new and enhanced business strategies and processes, and expansion of businesses and new product lines.

Across different types of businesses, the sentiment was mixed for the first quarter. The outlook of importers and domestic-oriented firms was less sanguine, while exporters and dual-activity (both importer and exporter) firms’ outlook was more positive.

Business sentiment was mixed across sectors the second quarter. The outlook of the services and wholesale and retail trade sectors for the current quarter was less favorable compared to that in the previous quarter, following the national trend.

Meanwhile, the sentiment of the construction sector was steady, while that of industry was more buoyant. For the next quarter, optimism was higher in the industry, wholesale and retail trade, and services sectors, but lower in construction.

Industry firms’ outlook was bullish both for the current and next quarters, particularly in the electricity, gas and water supply and manufacturing sub-sectors. Respondents’ more optimistic views were driven by the successive roll-back of oil prices and lower production inputs (e.g., raw materials) which consequently lower firms’ production costs, expectations of higher election-related production activities, such as printing/manufacturing of campaign materials and giveaways, and innovations in product design and quality.

Construction firms’ outlook for the first quarter was steady due largely to the pending results of bidding for 2016 projects.

The lull in construction activities is expected to affect businesses for the next quarter (Q2 2016), with the outlook of construction firms remaining less positive.

Meanwhile, the outlook of firms in the wholesale- and retail-trade sector was less sanguine for the first quarter but turned more upbeat for the second quarter, the survey said.

Likewise, the services sector’s outlook in the first quarter was tempered by a seasonal slack in demand for hotels and restaurants and real-estate services after the holiday season.

Respondents also cited uncertainties in the global market (particularly the slowdown of China’s economy) as well as in the local front (i.e., bearish stock market and concerns over the outcome of the coming elections), and slump in oil prices which could dampen demand for some industrial engineering services.

The outlook of firms in the services sector was slightly more upbeat for the second qurter on account of the usual uptick in demand during summer and harvest seasons, brighter prospects with the upcoming elections due to campaign-related spending and the change in administration in May, low oil prices, improved marketing strategies, new investment opportunities, and improvement in the collection of accounts receivables.

The employment-outlook index rose to 27.2 percent from 19.5 percent last quarter. This indicates expectations of an overall increase in the number of new employees to be hired for the second quarter of the year.

The percentage of businesses with expansion plans in the industry sector for Q2 2016 remained broadly steady at 31.3 percent. Meanwhile, average capacity utilization for the current quarter decreased to 74.8 percent from 77 percent registered last quarter.

The financial-conditions index increased slightly, albeit remaining in the negative territory, at -0.1 percent for Q1 2016 from -0.7 percent in the previous quarter. This means that firms continued to be pessimistic regarding their financial conditions for the current quarter, although the number of pessimists declined. 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, with the number that said so remaining broadly steady compared to that a quarter ago.

Although more respondents continued to expect inflation to rise for the current and next quarters compared to those who said otherwise, businesses expected the rate of increase in commodity prices to remain low at 1.9 percent for the first quarter and 2.1 percent in the second quarter.

LUIS LEONCIO