Traders remain upbeat, but wary of Trump moves

By Luis Leoncio 

Local businesses maintained their positive outlook in the first quarter despite the political noise as a result of the determined anti-drugs campaign of President Duterte, a recent Bangko Sentral ng Pilipinas (BSP) survey among executives showed. 

The quarterly Business Expectation Survey (BES) indicated that businesses were more worried with the evolving protectionist policies of US President Donald Trump than the domestic political infighting.

The survey showed business optimism was steady for the first quarter, with the overall confidence index (CI) declining slightly at 39.4 percent from the previous quarter’s 39.8 percent.

The BSP said optimists continued to outnumber pessimists, based on the survey.

The CI is computed as the percentage of firms with positive views less the negative respondents.

The survey said that among the factors that influenced the sentiment of business during the period were the usual slowdown in business activity and moderation of consumer demand after the holiday and harvest seasons; the start of implementation of new business strategies for the year; rising oil prices and higher cost of raw materials, and the wait-and-see attitude of investors with regard to the economic policy of the Trump administration, which could affect companies involved in business process outsourcing (BPOs). Likewise, the sentiment of firms was tempered by expectations of peso depreciation, (which increases costs of imports) and the relatively higher inflation and interest rates.

For next quarter’s outlook, the positive views improved, with the CI rising to 47.2 percent from 34.5 percent the previous quarter.

The respondents expected economic growth to accelerate for the next quarter. Also cited as factors for the improved outlook were the anticipated increase in demand during summer (due to the expected influx of a greater number of local and foreign tourists), the enrollment and harvest periods; the sustained increase in orders and projects leading to higher volume of production; the expansion of businesses and new product lines; the introduction of new and enhanced business strategies and processes; the continued infrastructure projects and government spending; and confidence in the administration.

Among business types, domestic-oriented firms were less optimistic for the first quarter, while trading businesses were more upbeat.

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. The sentiment of the industry and construction sectors was more buoyant.

For the second quarter, optimism was higher in the industry, the wholesale and retail trade, and services sectors, but lower in construction.

The survey also showed the bullish outlook of industry firms for the year. The respondents’ more optimistic views were driven by expectations of higher energy sales, business expansion with the opening of new branches and start of operation of new plants, and new projects for the year.

The outlook of construction firms was also buoyant due largely to the start of implementation of 2017 construction projects both public and private, and innovations in equipment design and quality.

However, while on-going construction activities will continue into the next quarter, a lull in new projects is expected to affect businesses with the outlook of construction firms turning less optimistic.

Meanwhile, the services sector’s outlook was less positive in the first quarter due to the seasonal slack in demand for hotels and restaurants, real estate, and transportation services after the holiday season.

Respondents also cited uncertainties over the policy direction of the new administration in the US as well as in the local front.

For the next quarter, the outlook of firms in the services sector was more upbeat on account of the usual uptick in demand during summer, with the presence of more local and foreign tourists, new investment opportunities, increase in hiring intentions, and expectations of brisker business due to the Philippines’ hosting of the Association of Southeast Asian Nations (Asean) summit in April 2017.

Likewise, the outlook of firms in the wholesale and retail trade sector was less optimistic for Q1 2017 but turned more upbeat for Q2 2017.

The less favorable outlook of the trade sector for the current quarter stemmed from expectations of a slack in consumer demand and business activities after the Christmas season, stiffer domestic competition emanating from the construction of new malls, and higher operational costs due to rising oil prices and peso depreciation. The respondents attributed their optimism for the next quarter to expectations of generally more robust demand during the summer, harvest and enrollment seasons, business expansion and improvement in product lines.

The employment outlook index for the next quarter increased compared to the last quarter’s survey suggesting more firms will continue to hire new employees.

The number of firms with expansion plans increased while capacity utilization remained unchanged.

The percentage of businesses with expansion plans in the industry sector for the second quarter increased to 34.9 percent from 31.7 percent a quarter ago.

Meanwhile, the average capacity utilization for the first quarter remained steady at 75 percent, indicating sustained volume of business activity for the current quarter.

The financial conditions index reverted to negative territory at -1.2 percent from 0.1 percent in the previous quarter reflecting prospects of tighter financial conditions.

Nonetheless, firms were of the view that their financing requirements could be met through available credit as majority of respondents reported easy access to credit although the number that said so decreased compared to the previous survey’s results.

More respondents anticipated the peso to further weaken due to global developments such as the US Fed rate hike in December 2016 and expectations of more and faster rate increases in 2017; and uncertainties emanating from the economic policy agenda of the Trump administration.

Likewise, interest rates were expected to increase for Q1 and Q2 2017. The percentage of respondents that expected higher interest rates increased compared to those in the previous quarter’s survey.