Business less optimistic about Q3

Filipino businessmen are less optimistic about the country’s economic prospects for the third quarter of the year not only due to seasonal factors, like weaker business prospects during the school opening and the rainy season, but also because of expectations of higher consumer prices.

This was the finding of the Bangko Sentral ng Pilipinas’ latest quarterly business confidence survey which also showed a “steady” level of optimism among traders for the second quarter of 2018.

“For the quarter ahead, business outlook was less positive,” the central bank said in a statement. “The next quarter confidence index, at 40.4 percent, was lower than the 47.8 percent in the previous quarter’s survey.”

“Respondents cited the following factors as a reason behind their lower business confidence: (a) interruption of business activities during the rainy season, (b) low consumer demand as households prioritize enrollment expenses, and (c) expectations of higher commodity prices.”

More importantly, the central bank said survey respondents were expecting the peso to depreciate against the US dollar in the coming quarter, while the cost of borrowing was expected to rise along with the inflation rate.

For the current quarter, however, business optimism on the economy was steady, with the overall confidence index declining slightly to 39.3 percent from 39.5 percent during the first quarter of 2018.

“This means the optimists continued to outnumber the pessimists but the margin was almost unchanged from that of a quarter ago,” the central bank said.

The confidence index is computed as the percentage of firms that answered in the affirmative less the percentage of firms that answered in the negative with respect to their views on a given indicator.

Specifically, respondents with steady outlook noted that sustained demand and ongoing market adjustments as a result of the recently enacted Tax Reform for Acceleration and Inclusion (TRAIN) law were to be expected for the current quarter, the BSP explained.

Outlook remained optimistic due to the usual higher demand during summer (given the expected arrival of local and foreign tourists); enrollment and harvest periods; increase in orders and volume of production; ongoing rollout of government infrastructure projects with the “Build, Build, Build” strategy of the administration; and “positive view” on the TRAIN law as its revenue is expected to support infrastructure projects of the government, which may attract new investments; expansion of businesses and new product lines, and in sound macroeconomic conditions.

“However, there was a slight dent on optimism caused by expectations of higher consumer prices, partly due to oil price hikes, and peso depreciation,” the BSP said.

The latest edition of the central bank’s quarterly business expectations survey was conducted during the period from April 2 to May 22, 2018. There were 1,466 firms surveyed nationwide. The response rate for the survey this quarter was higher at 83.5 percent, from 82.3 percent in the previous quarter. The response rate was higher for both NCR at 80.4 percent (from 80 percent in the previous quarter) and provincial areas at 85.5 percent (compared to 83.8 percent in the previous quarter).