Business confidence as expected is on the high side for the last three months of the year with the long holidays boosting demand while easing inflation and lower interest rates are encouraging businesses to increase operations, according to the latest Business Expectations Survey (BES) of the Bangko Sentral ng Pilipinas (BSP).
The seasonal uptick in business activities during the “Ber” months of October to December – and usually with an early start in September – increased the demand for goods and services, leading to expansion and improvement of business operations.
Based on the fourth quarter 2024 BES, the overall confidence index (CI) went up to 44.5 percent due to businesses’ optimism, from 32.9 percent in the previous quarter. An improved CI means the percentage of optimists have increased during the period while there was also a decrease in the percentage of pessimists.
The higher demand in the fourth quarter translated to more buyers of agricultural products; more infrastructure projects undertaken; increased shipping and distribution services; more transportation units; higher enrollment; and the production of chemicals also increased as well as graphics services, among others.
The lower inflation that has settled within the two percent to four percent government target band, and the reduction in the central bank policy rate boosted business sentiment in the fourth quarter but it has a more subdued impact for the next quarter in 2025.
For the first quarter next year, the BSP noted that business confidence was less upbeat with an overall CI of 40.3 percent, lower than the previous quarter’s 56.8 percent.
Firms were less optimistic next quarter because of: post-holiday decline in demand for products and services and business activities; stiff foreign and domestic competition; increased economic uncertainty leading up to the midterm elections; peso depreciation; and higher costs of production.
The next 12 months also showed a “less buoyant” business outlook with an overall CI 56.4 percent versus 58 percent in previous survey.
Surveyed firms cited the following reasons for the subdued sentiment: weaker demand for products and services; economic impact of escalating geopolitical tensions; stiff domestic and foreign competition; and inflation picking up again.
Meanwhile, the BES which was conducted on Oct. 4 to Nov. 14, reported that businesses expected a stronger peso and higher interest rates in the last quarter of the year.
The outlook is similar for the first quarter 2025 and in the next 12 months, that the peso will appreciate against the US dollar. The local currency is currently weak and nearing P60 while the BSP key rate has been reduced by a cumulative 75 basis points to 5.75 percent from 6.5 percent.
As for inflation, businesses expect higher a inflation rate in the fourth quarter 2024 and in the first quarter 2025, as well as in the next 12 months. But, inflation expectations could ease in 2025 as per the survey.
Generally, business sentiment across sectors is “mostly more optimistic” in the last quarter this year, said the BSP. Businesses are more optimistic except in the construction sector which has a less upbeat outlook.
Businesses also expect higher capacity utilization for industry and construction firms in the current quarter. The average capacity utilization for these two sectors increased to 73.9 percent in the fourth quarter versus 71.9 percent in the previous quarter.
Firms likewise anticipate that financial condition and credit access will improve in the last quarter of 2024, with “less tight cash or liquidity positions” with an improved financial condition index and a credit access index.
The BES is a quarterly survey of companies from the list of the country’s Top 7,000 Corporations. The BSP said survey results give them advance indication of the overall business activity, their sentiments, and how they view the economy. The BES also reviews the various measures of companies’ operations and other selected economic indicators.