June 19, 2018, 7:51 pm
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Business confidence is steady for Q2

Business optimism on the economy was steady for the second quarter, with the overall confidence index (CI) declining slightly to 39.3 percent from 39.5 percent for the previous quarter. 

Bangko Sentral ng Pilipinas said this means that the optimists continued to outnumber the pessimists but the margin was almost unchanged from that of a quarter ago. 

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, BSP said 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. 

Outlook remained optimistic due to the (a) usual higher demand during summer, enrolment and harvest periods, (b) increase in orders and volume of production, (c) ongoing rollout of government infrastructure projects with the “Build, Build, Build” strategy of the administration, (d) positive view on the TRAIN Law as its revenue is expected to support  infrastructure projects of the government, which may attract new investments, (e) expansion of businesses and new product lines, and  (f) 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 sentiment of businesses in the Philippines mirrored the steady business outlook in China, Chile, Mexico, Germany and the Euro Area. 

Meanwhile, a less optimistic outlook was registered by businesses in the United States, France, the Netherlands and Thailand, while more buoyant views were reported by those in Canada, Hong Kong SAR and South Korea.

For the quarter ahead, business outlook was less positive. The next quarter CI, at 40.4 percent, was lower than the 47.8 percent in the previous quarter’s survey. 

Respondents cited the following factors as reasons behind their lower business confidence: (a) interruption of business activities during the rainy season, (b) lower consumer demand as households prioritized enrolment expenses, and (c) expectations of higher commodity prices.

The outlook of businesses involved in international commodity trading turned more buoyant for the second quarter. 

Among business types, exporters were the most bullish on account of better prices of export commodities in the world market, increasing orders from abroad, and anticipated increase in volume of production with the ongoing infrastructure development as well as expected uptick in investments as an offshoot of the TRAIN Law. 

Likewise, importers and domestic-oriented firms were more optimistic as they expected that economic growth would be driven by robust consumer demand arising from seasonal factors during summer as well as the anticipated higher levels of household disposable income as the TRAIN Law takes effect. 

The outlook of dual-activity firms was also more favorable.

Business sentiment for second quarter was generally upbeat across sectors except for the services sector whose views were less positive.

Construction firms’ bullish outlook for second quarter was on account of the award of new construction projects for 2018 and better business environment.

Business confidence across industry sub-sectors was broadly more positive, except that of the electricity, gas and water sub-sector, which was less favorable. 

Respondents attributed their optimism to anticipation of more robust demand, business expansion and enhancement of marketing strategies during the current quarter.

The improved outlook of the wholesale and retail trade sector for second quarter was due to expectations of a brisker domestic economy. 

This is on the back of the seasonal uptick in demand during summer, enrolment, and harvest seasons, stronger business activity over the course of the campaign period for the barangay elections, and expected increase in purchasing power of consumers with the implementation of the TRAIN Law.

Meanwhile, the less optimistic outlook of the services sector for the current quarter stemmed from concerns over a weaker peso and higher commodity costs in the global economy.

The outlook of firms about their own business operations improved for compared to that a quarter ago. The sentiment of firms on the volume of business activity and total orders booked was more upbeat, particularly for the industry and wholesale and retail trade sectors. 

The employment outlook index for the next quarter remained positive across sectors although lower compared to a quarter ago. 

This suggests that more firms will continue to hire new employees than those that indicated otherwise, although the number of new hires could be lower compared to the previous quarter’s survey.

The percentage of businesses with expansion plans in the industry sector for the next quarter edged lower to 34.2 percent from 35.1 percent in the previous quarter. 

Meanwhile, the average capacity utilization for second quarter was slightly higher at 74.8 percent from 74.3 percent in Q1 2018.

The financial conditions index remained in negative territory at -4.8 percent for Q2 2018 from -4.6 percent in the previous quarter. 

This means that firms that expected tighter financial conditions continued to outnumber those that said otherwise. 

However, firms were of the view that their financing requirements could be met through available credit as more respondents reported easy access to credit although the number that said so declined relative to a quarter ago.

The second quarter BES was conducted during the period 2 April – 22 May 2018. 

There were 1,466 firms surveyed nationwide. Respondents were drawn from the combined list of the Securities and Exchange Commission’s Top 7,000 Corporations in 2010 and Business World’s Top 1,000 Corporations in 2016, consisting of 583 companies in NCR and 883 firms in AONCR, covering all 16 regions nationwide. 

The survey response rate for 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 AONCR at 85.5 percent compared to 83.8 percent in the previous quarter. 
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