Business confidence on the wane due to political uncertainties

Uncertainties over the government’s foreign policy direction and the weakening peso dragged down business optimism, with the overall confidence index (CI) dropping to 39.8 percent in the fourth quarter, the lowest in over two years, the Bangko Sentral ng Pilipinas (BSP) said.

While the CI remained in positive territory—which meant optimistic companies outnumbered pessimists—the figure for the October to December period was also the lowest fourth-quarter CI since 2011’s 38.7 percent, the BSP’s latest business expectations survey released Friday showed.

BSP data also showed that while the fourth quarter yielded higher optimism than the preceding quarter amid strong consumer spending during the holiday season, the October to December CI declined from 45.4 percent in the third quarter. The last time that the fourth quarter optimism was lower quarter-on-quarter was in 2004, which fell to 18.6 percent from the previous quarter’s 30.5 percent.

On a quarterly basis, the latest figure was the lowest since the 34.4 percent posted in the third quarter of 2014.

“Despite the usual uptick in demand during the Christmas season, business outlook was less buoyant for the current quarter due to perceived concerns over the direction of foreign policies and economic reforms in the country, weakening global demand, foreign exchange losses of importers due to peso depreciation, and lack of supply of raw materials,” Teresita B. Deveza, deputy director at the BSP’s department of economic statistics, told a press conference.

President Duterte last October declared an “economic separation” from the United States, a long-time ally and one of the country’s top trading partners, following US President Barack Obama’s criticism on the country’s war against illegal drugs. The President also declared a pivot to China, one of the US’ top critics.

Adding to the uncertainties were external political developments, including the unprecedented win of firebrand Donald Trump in the US elections, said Francisco G. Dakila Jr., managing director of the BSP’s monetary policy sub-sector.

The BSP said business confidence would continue to be on the wane as “the next quarter index declined to 34.5 percent from 56.8 percent in the previous quarter’s survey results.” He said the slowdown in consumer demand after the holiday season affected the outlook for the first quarter of 2017.

“Other reasons cited by firms were the direction of foreign policies and economic reforms in the country, stiffer competition with the entry of new players in the market, and the wait-and-see attitude of investors for the coming year following the results of the US national elections, which could affect the interest rate movements in the country,” Deveza added.

Respondents also anticipate the peso to depreciate until the first quarter of 2017. The peso slid to the 49:$1 range and tested the $50:1 level this week.

The business expectations survey for the fourth quarter was conducted from Oct. 3 to Nov. 17, covering 1,470 companies across the country.