BUSINESS EXPECTIONS SURVEY

Business optimism for Q2 grows from weak Q1

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Business firms showed less confidence in the Philippine economy for the first quarter of 2017, the least positive they have been in 11 quarters, but the outlook turned more upbeat for the second quarter of the year, the latest Business Expectations Survey (BES) by the central bank said.

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The results of the survey released on Thursday found that companies saw their own operations faced with uncertainty, while global and domestic developments also affected their perception.

The overall business Confidence Index (CI) for January to March eased marginally to 39.4 percent from 39.8 percent in October to December 2016, according to the latest BES by the Bangko Sentral ng Pilipinas (BSP).
“This means that the optimists continued to outnumber the pessimists but the margin was almost unchanged from that of a quarter ago,” Rosabelle Guerrero, director of the BSP’s Department of Economic Statistics, told reporters in a briefing.

The figure for the first quarter is the weakest CI since the third quarter of 2014, when it settled at 34.4 percent.

Guerrero said the current quarter’s relatively steady outlook stemmed from the counterbalancing of the number of respondents that reported more positive views on the economy with those that indicated that they were negatively affected by the: usual slowdown in business activity and moderation of consumer demand after the holiday and harvest seasons; start of implementation of new business strategies for the year; rising oil prices and higher cost of raw materials; and wait-and-see attitude of investors with regard to the economic policy of the Trump administration, which could affect companies involved in business process outsourcing.

“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.

Improved outlook for Q2

For the quarter ahead, however, the outlook improved, with the CI rising to 47.2 percent from 34.5 percent.
Guerrero said this suggests that economic growth could accelerate in the next quarter.

BSP Deputy Governor Diwa Gunigundo added: “Obviously, the perception of the business respondents for the following quarter was higher, so we can expect that economic activity, on the basis of the Business Expectations Survey, will continue to be upbeat.”

Respondents’ optimism for the second quarter of 2017 was based on: an anticipated increase in demand during summer due to an expected higher influx of local and foreign tourists, enrolment and harvest periods; sustained increase in orders and projects leading to higher volumes of production; expansion of businesses and new product lines; introduction of new and enhanced business strategies and processes; continued infrastructure projects and government spending; and confidence in the administration.

“Although the BSP’s Business Expectations Survey for the first quarter of 2017 did edge lower, compared [with]the previous quarter, businesses reported a big rise in business confidence for the second quarter, signaling a near-term rebound in growth momentum,” said IHS Markit senior economist Rajiv Biswas.

Biswas said the Association of Southeast Asian Nations (Asean) Summit to be held in the Philippines in April is also expected to provide a boost to domestic consumer spending.

“Overall, the latest BSP Business Expectations Survey continues to signal sustained strong economic expansion in the Philippines economy until mid-2017. IHS Markit forecasts continued rapid GDP [gross domestic product]growth for the Philippines economy at a pace of 6.3 percent per year in both 2017 and 2018,“ he added.
IHS’s forecasts indicate a slowdown from 6.8 percent achieved in 2016.

The latest BES, which polled 1,494 companies nationwide, was conducted from January 5 to February 15. 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.

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