Business confidence dips further – BSP

Published September 23, 2022, 4:13 PM

by Lee C. Chipongian

As opposed to rosy consumer expectations, business confidence dipped further due to weak peso, higher borrowing and inflation rates, affecting expansion and hiring plans for the last quarter of 2022 and in the next 12 months, according to a central bank survey.

Based on the third quarter Business Expectations Survey (BES) which the Bangko Sentral ng Pilipinas (BSP) conducted on July 6 to Aug. 15, overall confidence index (CI) dropped to 26.1 percent from 35.4 percent in the second quarter. This was due to the decrease in the percentage of optimists and an increase in the percentage of pessimists.

A shoe factory in Marikina City (Noel B. Pabalate / MANILA BULLETIN)

Business sentiment continued to be on the pessimistic side for the fourth quarter and in the next 12 months, said the BSP.

The lackluster business outlook in the third quarter was due to higher inflation, rising fuel prices, decline in sales and demand, the peso depreciation and the continuing Covid-19 public health threats.

For the next quarter, the business sentiment also weakened for the second consecutive quarter as the overall CI decreased to 43.9 percent from 46.4 percent in the previous quarter.

It is the same for the next 12 months, with an overall CI decreasing to 57.7 percent from 59.9 percent in the second quarter survey.

The survey indicated that most firms still expect the peso to depreciate further. At the time of the survey, the peso was at P54 to P55 versus the US dollar. By Sept. 22, the peso has weakened further to P58.50 intraday.

“Businesses expected the peso may continue to depreciate against the US dollar and the peso borrowing and inflation rates may rise in Q3 (third quarter) and Q4 2022, and the next 12 months,” said the BSP.

“Further, businesses expected that inflation may breach the upper end of the government’s 2–4 percent inflation target range for 2022-2023. In particular, firms were expecting that inflation may settle at 5.6 percent in Q3 2022 and Q4 2022 and at 5.4 percent for the next 12 months,” it added.

The business outlook across all types of trading firms are “generally less upbeat” in the third quarter, with exporters, importers and domestic-oriented firms registering lower CIs.

For the fourth quarter, the outlook was still “less buoyant” for importers and exporters, but more optimistic for domestic-oriented firms and dual-activity firms.

The outlook for the next 12 months, meantime, was also less upbeat for importers, more favorable for exporters and dual-activity firms but unchanged for domestic-oriented firms, noted the BSP.

The CI across sectors including construction, services, wholesale and retail trade and the industry sectors were likewise found to be less positive in the third quarter compared to the second quarter survey results.

For the fourth quarter and the next 12 months, the BSP said the surveyed firms also indicated less optimistic views based on their business operations, the volume of business activity and total orders booked.

In terms of capacity utilization, some sectors noted unchanged conditions while others such as the industry sector noted slightly increased capacity utilization in the third quarter.

Generally, surveyed firms expect financial condition and access to credit to be tighter in the third quarter as well.

For the last quarter of the year, the BSP said the percentage of firms that look forward to hiring more people has declined but the percentage of firms with expansion plans have somewhat improved.

According to the BES report, the employment outlook index declined to 22.7 percent for the fourth quarter from 25.4 percent in the second quarter, while it is steady at 30 percent for the next 12 months.

“The lower reading in Q3 2022 suggests that hiring intentions may turn less favorable for the next quarter, while employment prospects for the next 12 months remain optimistic,” said the BSP.

Some 1,504 firms participated in the latest BES, of which 584 companies are located in the National Capital Region (NCR) and 920 firms are in areas outside of the NCR. The survey covered 16 regions nationwide.