Businesses are not as optimistic as before when it comes to third quarter outlook as well as in the next 12 months due to lingering uncertainties from El Niño, inflation, high oil prices, and softer demand for goods and services, according to a central bank survey.
Based on the Bangko Sentral ng Pilipinas’ (BSP) latest Business Expectations Survey (BES), the business confidence index (CI) for the third quarter or the months of July, August and September dropped to 43.7 percent from 48.1 percent in the first quarter BES results. For the next 12 months, business outlook was also less optimistic with an overall CI of 56.5 percent versus 60.8 percent in the previous survey.
Officer-in-charge Redentor Paolo M. Alegre Jr. of the BSP Monetary Policy Sub-Sector, who presented the latest BES in a press briefing Friday, June 28, said the overall CI for the second quarter or April, May and June was similarly less upbeat at 32.1 percent from 33.1 percent previously. The CI is computed as the percentage of firms that answered in the affirmative less the percentage of firms that answered in the negative with regard to their views on the overall business outlook.
"Business outlook is less upbeat for the third quarter and the next 12 months," said Alegre.
He said surveyed firms expressed concerns over the following: softer demand for goods and services such as personal care, health and other consumer products, construction supplies, city hotels and restaurants, and manpower services; ongoing international conflicts that may push oil prices higher; slowdown in business activity due to El Niño-induced extreme weather conditions; and persistent inflationary pressures that may weigh down consumer spending.
Generally, the survey which was conducted from April 5 to May 23 and covered 16 regions, assessed the firms’ expectation of tight financial condition and credit access during the quarters reviewed. This meant tighter cash or liquidity positions.
Alegre said businesses expect a weaker peso, higher inflation and interest rates in the second and third quarter. For the third quarter, firms expect inflation to average at 4.4 percent and 4.5 percent for the next 12 months. Both numbers are above the government target range of two percent to four percent. As of end-May, the inflation rate averaged 3.5 percent.
As for the exchange rate, businesses are anticipating that the peso-US dollar rate for the third quarter will average at P56.63 and P56.51 for the next 12 months. The spot market is currently at the P58 level.
"Businesses expect that the peso may depreciate against the US dollar in the second quarter and third quarter but may appreciate in the next 12 months," said Alegre.
The BSP said the overall CI for the third quarter weakened mainly due to: lower demand for products and services such as hardware and construction materials, food supplements and other consumer goods, and medical services; elevated inflation and higher commodity prices; start of off-milling and rainy seasons; slower economic growth; and adverse impact of the ongoing conflicts abroad.
For the next 12 months, business outlook was likewise less upbeat because of weaker demand for products and services such as hardware and construction supplies, poultry, dining, and leisure trips; stiff domestic and foreign competition; the possible escalation of the ongoing conflicts in Gaza and Ukraine; and persistent price pressures from higher food prices, including rice.
The quarterly BES covered sectoral outlook and business outlook on its own operations, employment, capacity utilization and expansion plans.
Results of the BES “provide advance indication of the direction of the change in overall business activity in the economy and in the various measures of companies’ operations as well as in selected economic indicators,” according to the BSP.
The central bank surveyed 1,526 firms nationwide for the second quarter BES, of which 582 companies are located in the National Capital Region (NCR) while 944 firms are in areas outside of the NCR.