Seasonal factors and the impact of higher taxes, among other factors, have led to lower business optimism for the first quarter, the Bangko Sentral ng Pilipinas (BSP) reported on Friday.
The confidence index (CI) — computed as the percentage of companies that answered in the affirmative minus those who replied otherwise — fell to 39.5 percent from 43.3 percent three months earlier, results of the BSP’s latest Business Expectations Survey (BES) showed.
Reasons cited by respondents were an expected slowdown in business activities and consumer demand following the holiday and harvest seasons, rising fuel prices that are being affected by crude price movements and higher excise taxes on petroleum products, and increased competiton.
“[C]oncerns cited by respondent firms over the transitory impact on consumer prices with the implementation of the Tax Reform for Acceleration and Inclusion (Train) law may have contributed to the lower outlook, although a significant number of businesses surveyed also mentioned about the positive impact of the tax reform,” BSP Department of Economic Statistics Director Rosabel Guerrero said in a briefing.
The Train law, which took effect at the start of the year, raised taxes on fuel products, car sales and sugar-sweetened beverages, among others, in exchange for lower personal income taxes. Revenues from the law will be used to fund the government’s “Build Build Build” program.
Higher crude prices
Pump prices were immediately affected when the law took effect but central bank Deputy Governor Diwa Guinigundo noted that January’s increases were also due to a “huge increase of Dubai crude oil from something like $60 per barrel to $62 per barrel.”
“That was of course reflected in the domestic prices of gasoline, kerosene, and diesel. LPG (liquefied petroleum gas) prices also went up at a less significant amount,” he added.
The Bangko Sentral also noted that the dip in optimism wasn’t confined to the Philippines as it mirrored the “less favorable business outlook in the US, Canada, China, Hong Kong and South Korea, but was in contrast to the more bullish views of those in the UK, Australia, France, Germany, Netherlands and Thailand.”
The decline in first quarter optimism was attributed largely to the wholesale and retail trade sector, which cited expectations of reduced consumer demand following the holidays and initial price hikes due to the Train law’s implementation.
Other sectors were bullish over the impact of Train, with industry firms bullish over higher household disposable incomes and construction companies looking forward to new projects.
More upbeat for Q2
The outlook for the next three months, meanwhile, rose to 47.8 percent from 39.7 percent with respondents pointing to a usual increase in demand during the summer, school enrolment and harvest periods; increased government infrastructure spending under “Build, Build, Build”; business expansions, new projects and investment opportunities; and continued product development, new products and enhanced marketing strategies.
“This suggests that economic growth could accelerate for the next quarter,” the Bangko Sentral’s Guerrero said.
By industry, optimism was higher for the industry, wholesale and retail trade, and services sectors but lower for construction, the BES found.
Hiring intentions for the next quarter also increased with the employment outlook index rising to 29.9 percent from 24.7 percent in the previous survey.
The percentage of firms planning to expand also rose to 35.1 percent from 31.1 percent.
Financing, inflation outlooks
The financial conditions index, meanwhile, remained in negative territory for the first quarter, worsening to –4.6 percent from 0.9 percent. The BSP, however, said “firms were of the view that their financing requirement could be met … as respondents reported easy access to credit”.
Businesses also expect inflation to increase but remain within target, the peso to weaken and interest rates to rise for both the current and second quarters. For inflation, respondents forecast first quarter and second quarter results of 3.4 percent and 3.5 percent, respectively, within the BSP’s 2.0-4.0 percent target range.
The latest BES, which polled 1,469 companies nationwide, was conducted from January 8 to February 22. The survey results are considered indicative of the direction of overall business activity.