Local businesses turned positive and “more buoyant” in the next three months - April to June - compared to the first quarter this year due to government’s rapid vaccination drives to counter the threat of a new COVID-19 variant emerging, based on the Bangko Sentral ng Pilipinas’s (BSP) latest Business Expectations Survey (BES).
According to the BES, business sentiment in the second quarter and in the next 12 months improved from the “less optimistic” condition in the first quarter which was beset by the Omicron surge.
The BSP said most companies however expect the weak peso which has depreciated to a low of P52.43:$1 on Thursday, to continue in the next quarter while elevated inflation rates will translate to higher borrowing.
Business confidence in the first quarter fell to an overall confidence index (CI) of 32.9 percent from 39.7 percent in the fourth quarter 2021, according to the first quarter BES. The lower positive index resulted from the combined effects of a decrease in the percentage of optimists and an increase in the percentage of pessimists, said the BSP.
The “less buoyant outlook” in January to March was due to the resurgence of COVID-19 cases which led to the reimposition of stricter lockdown measures in January. The weaker business confidence was also due to the following: increase in prices of raw materials and fuel; decrease in sales/demand for certain goods and services such as motor vehicles, education services, and construction; weakening peso; and adverse impact of natural calamities such as Typhoon Odette in December.
The BSP said that for the next quarter, the business sentiment is more buoyant with an overall CI of 59.7 percent, an improvement from 52.8 percent previously.
“For the next 12 months, business sentiment was also more optimistic as the overall CI increased to 69.8 percent from previous quarter’s survey result of 67.6 percent. This is the highest reported CI for the next 12 months since the BES started to collect outlook for the next 12 months in Q3 (third quarter) 2019,” the BSP noted.
The survey, which was conducted from Jan. 21 until March 4, said businesses expect that the peso to depreciate against the US dollar in the first two quarters of 2022 but will rebound and appreciate by the third quarter this year until the first quarter of 2023.
BES results also indicated that firms expect the peso borrowing and inflation rates may rise in the first two quarters this year and in the next 12 months. “Businesses are expecting that inflation will settle at 4.2 percent for the first half of 2022 and in the next 12 months, which is slightly higher than the upper end of the government’s 2–4 percent inflation target range for 2022,” said the BSP. The central bank’s latest inflation forecast is 4.3 percent for this year and 3.6 percent in 2023.
The BES surveyed 1,498 firms in 16 regions, of which 578 are located in the National Capital Region or NCR and 920 firms in areas outside the NCR.
The BSP said the outlook across all types of trading firms was less upbeat in the first quarter 2022 but has turned more buoyant for the near term. These are exporters, importers, dual-activity traders and domestic-oriented traders.
It was similar for the business sentiment across all sectors which was weaker in the first three months but is “generally more bullish” for the next quarter and the next 12 months. The sectors that are less optimistic are industry, construction, services, and the wholesale and retail trade sectors. “For Q2 (second quarter) 2022, business outlook was more bullish for all sectors except the construction sector, whose sentiment turned less optimistic. Likewise, the CIs across all sectors for the next 12 months, except for the industry sector, recorded all-time highs in the current quarter,” said the BSP.
Generally, businesses’ outlook on operations such as volume of business activity and total orders booked are also less optimistic in the first quarter but took a more optimistic outlook for the second quarter although “less upbeat” for the next 12 months due to lingering uncertainties.
Capacity utilization has slightly declined in the first quarter with the average capacity utilization of the industry and construction sectors falling to 70.2 percent from 70.6 percent in the last quarter of 2021.
Meantime, the BSP said companies’ financial conditions and access to credit remained tight in the first quarter. The financial conditions index turned less negative at -19.1 percent in the first quarter versus -22.4 percent in the fourth quarter 2021. “Further, more firms indicated that their access to credit in Q1 (first quarter) 2022 was still constrained as the credit access index remained in negative territory at -2.9 percent in Q1 2022 from -7.7 percent in Q4 (fourth quarter) 2021,” said the BSP.
As for the employment outlook index, the BSP said this “edges higher but fewer firms plan to expand operations.” The employment outlook index stood at 24.7 percent for the second quarter, almost unchanged from the previous survey of 24.5 percent. The BSP noted that companies “are looking forward to hiring more people in the next quarter, while the lower index for the next 12 months implies that firms are still looking to hire, but at a lesser degree, in the next several months.”