Business firms gave a favorable view of the Philippine economy in the second quarter of 2017, reflecting optimism about economic prospects than in the first quarter, results of the latest central bank Business Expectations Survey (BES) showed.
Companies have a more positive outlook, driven by expectations of higher government disbursements on infrastructure and other development projects, and brisker business due to the Philippines’ hosting of the 30th Association of Southeast Asian Nations (ASEAN) Leaders’ Summit.
The overall Confidence Index (CI) rose to 43 percent in April to June from 39.4 percent in January to March, the Bangko Sentral ng Pilipinas (BSP) said on Friday.
The first quarter CI is the weakest since the third quarter of 2014, when it settled at 34.4 percent.
“Respondents cited the following factors for their more optimistic outlook: anticipated increase in demand during summer (due to the expected arrival of local and foreign tourists), enrolment and harvest periods, increase in orders and production volume, expansion of businesses and new product lines, introduction of new and enhanced business strategies and processes, and inflows of investments with the continuing trust in government leadership,” Rosabelle Guerrero, director of the BSP’s Department of Economic Statistics, told reporters in a briefing.
Guerrero said business sentiment in the Philippines mirrored the improved business confidence in Hong Kong, South Korea, Canada, France, Germany and Netherlands but was in contrast to the weaker outlook of those in the US, UK, Thailand and New Zealand.
“Likewise, the sentiment of firms was tempered by expectations of a peso depreciation (which increases the costs of imports) and relatively higher inflation and interest rates,” Guerrero said.
Less optimistic Q3
For the third quarter, however, the outlook was less optimistic with a CI of 42.7 percent.
According to respondents, seasonal factors were behind their less upbeat outlook, given the expected interruption of business activities during the rainy season, and lower consumer demand as households prioritize enrolment expenses over other expenditures.
For Q3 2017, the sentiment of dual-activity firms improved. However, the outlook was slightly less positive for exporters, importers and domestic-oriented firms.
Consistent with the overall outlook on the macroeconomy, business sentiment was more positive across sectors for Q2 2017, with the exception of the manufacturing and electricity, gas and water sub-sectors.
The services sector was the most optimistic for Q2 2017. Financial intermediation posted the highest confidence index given the expected increase in bank transactions due to robust domestic demand, surge in purchasing power of agricultural households during the harvest season, expected interest income from additional consumer loans as well as better business prospects given the positive impact on the economy of the Philippines’ hosting of the ASEAN Leaders’ Summit in April 2017.
The transport, storage and communications sub-sector was also bullish due to expectations of brisker business during the summer season as well as lower fuel costs, purchase of additional vehicles (i.e., aircraft, cargo vessels, and buses), telecommunication network improvement plans in Metro Manila, improved marketing strategies, and initiatives on the development of system processes. The outlook of firms in the other sub-sectors (i.e., renting and business activities, hotels and restaurants and real estate, likewise) improved. Only firms in the community, social and personal services sub-sector registered a lower outlook for Q2 2017.
Construction firms’ outlook for Q2 2017 was likewise more positive in view of the start of implementation of the 2017 construction projects (both public and private), and better business environment.
Inflation within target
More respondents expected inflation to increase for the current quarter compared to those who said otherwise. However, inflationary expectations have slightly eased as the number that said so decreased from a quarter ago. Businesses anticipated the rate of increase in commodity prices to stay ‘ within the government’s 2 to 4 percent inflation target range for 2017 and 2018, at 2.9 percent for Q2 2017 and 3 percent for Q3 2017 (from 2.3 percent and 2.4 percent in the previous quarter’s survey results, respectively).
More respondents also anticipated the peso to depreciate for Q2 2017 and 0.3 2017. Expectations of a weaker peso could be due to global developments, such as the US Fed rate hike in March 2017 and expectations of more and faster rate increases in 2017. The percentage of respondents that expected higher interest rates increased com pa red to those in the previous quarter’s survey.
The latest BES, which polled 1,485 companies nationwide, was conducted from April 3 to May 16. The survey results are considered as indicative of the direction of overall business activity.
The CI is computed as the percentage of firms that answered in the affirmative, minus the percentage of those that replied in the negative in a given indicator.