The Market Monitor Minding the Nation's Business
By Riza Lozada
Business outlook on the economy turned slightly less optimistic for the third quarter, with the overall confidence index (CI) declining to 45.4 percent compared to 48.7 percent in the previous quarter, partly as a result of rigid measures that the new administration implemented on the mining industry, the Business Expectation Survey of the Bangko Sentral ng Pilipinas (BSP) showed.
The BSP, however, said business sentiment “typically declines” during the third quarter because of seasonal factors and that the CI for the past quarter was the highest reading of all time. Respondents attributed their less buoyant outlook to expectations of interruption of business activities during the rainy season, a slack in demand during the planting and closed milling seasons, the lower consumer demand as households prioritized enrolment expenses, the implementation of stricter new mining policies that put some mining concessions on hold, the closed fishing season in Davao Gulf from July to September, stiff competition, and concerns over the weak global economy.
The businesses sentiment in the past quarter also mirrored the less buoyant business outlook in the US, UK, Germany and Hong Kong, but was in contrast to the more bullish views of those in France, Italy, South Korea, India and Switzerland.
The confidence index is computed as the percentage of firms that answered in the affirmative minus the percentage of firms that answered in the negative with respect to their views on a given indicator.
For the fourth quarter, respondents gave an outlook that was more upbeat as the next quarter index rose to 56.8 percent from 45.3 percent in the previous quarter’s survey results.
The increased optimism suggested that growth could accelerate in the last quarter.
The respondents’ more positive outlook was due to expectations of the expected uptick in consumer demand during the holiday, harvest and milling seasons, increased confidence in the new administration, continued 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, improved farm gate prices, and opening of high seas/fishing operations in October.
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’ (OFs) remittances.
The BSP survey, however, showed that the outlook across trade groups is mixed with importers and domestic-oriented firms’ views being relatively less favorable.
Meanwhile, the optimism of exporters and dual-activity firms improved. For the quarter ahead, the sentiment across different types of businesses was more optimistic, with the exception of dual-activity firms.
Industry firms (i.e., mining and quarrying, manufacturing, and electricity, gas and water) were less optimistic for the third quarter largely due to the usual slack in production activities during the rainy season, stiffer competition, and decrease in sales receipts of energy firms with the decline in power rates.
Meanwhile, firms in the agriculture, fishery and forestry sub-sector were bullish as they expected more favorable farming conditions with the end of El Niño.
Likewise, due to the seasonal slack in demand in the third quarter, the outlook of the wholesale and retail trade sector was less buoyant compared to that a quarter ago. Trading firms’ outlook was dampened by the sluggish demand during the planting season/closed milling season, adverse effects of weather disturbances (with the expected onset of La Niña), and concerns over the economic situation in Europe.
The outlook of the services sector remained favorable although less upbeat for the current quarter, generally on account of the seasonal sluggish demand during the rainy season. The less optimistic sentiment emanated from the outlook of the hotels and restaurants, community and social services, and transportation sub-sectors. Meanwhile, firms engaged in financial intermediation registered the highest CI (albeit lower compared to that of last quarter). Respondents from the real estate and business sub-sectors expected an increase in demand for industrial and commercial real estate as well as credit and investment information, respectively.
Meanwhile, the outlook in the construction sector improved for the current quarter compared to the previous quarter on account of the sustained demand in construction services (both public and private). Government infrastructure spending is expected to accelerate while business expansion projects continued for the third quarter. Some 1,474 firms nationwide were part of the BSP survey. The percentage of businesses with expansion plans in the industry sector for the fourth quarter decreased to 28.1 percent from 30.3 percent a quarter ago due largely to weaker expansion plans of firms in the manufacturing sub-sector. The average capacity utilization for third quarter was higher at 74.9 percent from 74 percent a quarter ago. The financial conditions index remained steady at 1.5 percent for third quarter from 1.3 percent in the previous quarter. This means that firms expected better financial conditions and easy access to financing through available credit. Businesses expected the inflation rate to remain low at 1.5 percent for the third quarter and 1.6 percent for the fourth quarter 2016.