Business, consumer confidence falls in Q3, seen negative in Q4 – BSP survey

Published September 24, 2020, 5:30 PM

by Lee C. Chipongian

Not surprisingly, the results of both the central bank’s Business Expectation Survey (BES) and the Consumer Expectation Survey (CES) were not on the positive and optimistic side as the COVID-19 pandemic is still unresolved and most of the country’s economic centers still under quarantine measures.

MB file photo.
MB file photo.

The quarterly BES and CES were temporarily suspended in the second quarter due to the lockdowns but were resumed for the third and fourth quarter reading.

Based on the latest BES and CES results, both outlook turned pessimistic for the third quarter compared to what was reported in the first quarter. “This is expected considering the effects of COVID-19 on businesses and jobs,” according to BSP Governor Benjamin E. Diokno who announced the results during his regular “GBED Talks” on Thursday.

The BES results (conducted July 8 to September 10) for the overall confidence index (CI) was a negative 5.3 percent for the third quarter, reversing the 22.3 CI in the period January to March this year. As for the CES (July 1 to 14), the CI also fell to a record low of negative 54.5 percent or the lowest since this survey began in 2007.

In the report, the BSP said the business confidence on the economy turned negative in the third quarter after posting 43 quarters of positive confidence from the third quarter in 2009 until the first quarter 2020.

The pessimism stems from these factors: the impact on the business outlook of the COVID-19 pandemic and community quarantine restrictions; decrease in orders, sales and income; slowdown/temporary shutdown in business operations; and concerns over government policies, primarily on the perceived insufficient mitigation measures to counter the impact of COVID-19. 

According to the BSP, the weak business sentiment extends to the fourth quarter with CI dropping to 16.8 percent from 42.3 percent in the first quarter. Still the outlook is tied to the negative effects of the COVID-19 pandemic on the volume of orders, sales, and income, and overall economic activity, in general, said the BSP. “Similarly, business outlook on the country’s economy was less upbeat for the next 12 months as the CI declined to 37.5 percent from 55.8 percent in the first quarter survey results due to (same) reasons,” it added. The next 12 months here covers the period August 2020 until July 2021.

Consumer confidence, also pessimistic for the third and fourth quarter, was more optimistic for the next 12 months.

The BSP said the consumers’ negative sentiment for the third quarter was still due to the COVID-19 pandemic as well as the following: high unemployment rate and less working family member; low and reduced income; and faster increase in the prices of goods. 

Consumer pessimism will remain until the last quarter of 2020 with a CI negative 4.1 percent, said the BSP, adding more reasons such as low, reduced, and no increase in income.

In the meantime, the BES results showed that companies’ outlook on their business operations is also on the negative side. “Consistent with the national trend, business outlook of firms about their own operations turned negative for the third quarter 2020 as compared with their sentiment in the first quarter 2020. Firms across sectors anticipate weaker volume of business activity and volume of total orders booked,” said the BSP. It is also the same for fourth quarter and the next 12 months as the outlook on the overall volume of business activity was less upbeat. 

The business outlook on employment turned negative as well as for the fourth quarter and the next 12 months and BSP said this suggests that “more firms may lay off workers in the fourth quarter 2020 and the next 12 months” as capacity utilization also decreases and expansion plans decline for the last quarter of 2020. 

 “Sentiment on financial conditions slipped to -47 percent, and firms were of the view that their access to credit is tight with the credit access index dipping to -15.5 percent for the third quarter 2020,” said the BSP. “Notably, these are the lowest index levels since the start of the nationwide survey in the fourth quarter 2006. The negative index means that more respondents reported tight financial conditions and difficulties in accessing credit than those that said otherwise.” 

Businesses also expect a stronger peso and lower interest rate, but higher inflation rate. “The survey results showed that businesses expect the peso to appreciate, interest rates to decline, but inflation to increase for the third and fourth quarter.”

Diokno said the surveys provide the Monetary Board advance information on the overall economic and business outlook for each quarter covered and also for the next 12 months. “We believe that business and consumer sentiments are valuable in shaping not only monetary and financial policies, but also socio-economic policies,” he said.

The BSP said consumers were more optimistic for the next 12 months with a CI of 25.5 percent compared to the first quarter numbers of 19.9 percent. “The consumer outlook was more upbeat for the next 12 months due to expectations of an end in the COVID-19 pandemic or return to normal as well as the consumers’ anticipation of the following — availability of more jobs, additional or high income, and stable prices of goods,” said the BSP.

By income group, the central bank said the CES all-time low overall CI for the third quarter was reflected across income groups, from the low-income group to middle and high-income groups. “Aside from the reasons cited by the consumers’ negative outlook,  consumer confidence for the middle-income group turned pessimistic due to expectations of higher household expenses. For the fourth quarter, the sentiment of consumers across income groups turned pessimistic, but improved for the next 12 months.”

Consumers’ spending outlook and households’ spending outlook both hit record lows in the third quarter while the percentage of households with savings for the period also declined.

In the meantime, the BSP said consumers expect inflation, interest and unemployment rates to increase, and the exchange rate to appreciate for the third quarter while inflation will remain within government targets.

 “The BSP believes that these surveys are valuable tools not only for shaping monetary and financial system policies, but also socio-economic policies. This is particularly true amid whole-of-nation efforts to address the impact of the COVID-19 pandemic,” according to Diokno.

The BES covered 1,517 firms all over the Philippines while the CES surveyed more than 5,400 households.