Business sentiment has become even more positive given the upcoming holidays but optimism is expected to take a dive — but overall remain upbeat — once the new year starts, the Bangko Sentral ng Pilipinas (BSP) reported on Tuesday.
The confidence index (CI) — computed as the percentage of firms that answered in the affirmative minus those who replied otherwise in the BSP’s latest Business Expectations Survey — improved to 43.3 percent for the last three months of 2017, up from 37.9 percent three months earlier and the 39.8 percent recorded last year.
Reasons cited were an expected rise in orders and purchases during the Christmas holidays, business expansions, increased state spending on infrastructure and other development projects, favorable macroeconomic conditions and stronger demand for Philippine exports.
“The sentiment of businesses in the Philippines mirrored the more bullish business outlook in Australia, Canada, Germany, and Indonesia, but was In contrast to the less favorable views of those in the US, UK, Hong Kong, South Korea, New Zealand and Thailand, and steady outlook in France,” the Bangko Sentral said in a statement.
The outlook for the next three months, however, fell to 39.7 percent from 51.3 percent during the previous survey with the BSP noting expectations of a slowdown in demand following the holidays, a lag in business transactions at the start of the year, increased competition, concerns over planned tax hikes on car sales and higher inflation.
Still, sentiment for the start of 2018 remains positive as optimists continue to outnumber pessimists.
The latest BES, which polled 1,473 companies nationwide, was conducted from October 2 to November 20. The survey results are considered indicative of the direction of overall business activity.
Record high for exporters
By trading type, exporters were the most bullish for the fourth quarter with sentiment staying at a record high of 50 percent. Domestic-oriented firms and traders were also more optimistic but sentiment among dual-activity firms declined.
Optimism for the quarter ahead was also less optimistic, the BSP said.
Sentiment by sector was also mixed, with services the most optimistic followed by wholesale and retail trade. Industry and construction, meanwhile, posted declines.
“Firms’ sentiment across sectors was less optimistic for Q1 2018 due largely to the usual slack in demand after the holiday season, except that for the construction sector, which turned bullish,” the Bangko Sentral said.
Drilling down, the BSP said firms in the hotel and restaurant business had the highest confidence index for the service sub-sector, hitting a two-year record of 73 percent for the current quarter.
Positive sentiment among wholesale and retail trade firms was tied to expectations of holiday demand and the main harvest season.
“Meanwhile, in the industry sector, the pessimism of firms in the manufacturing and and quarrying sub-sectors outweighed the more optimistic outlook of firms in the agriculture, fishery and forestry, and electricity, gas and water supply sub-sectors. Likewise, construction firms’ outlook for the current quarter was less favorable as firms take their cue from the government’s rollout of infrastructure projects,” the central bank said.
Companies are also more upbeat about business operations for the current quarter compared to three months earlier.
“The sectoral outlook of firms on the volume of business activity and total orders booked was consistent with those at the national level—more bullish for the services and wholesale and retail trade sectors but less upbeat for industry and construction,” the central bank said.
The jobs outlook for the next quarter, meanwhile, declined to 24.7 percent from 27.3 percent in the previous survey. Still, the BSP said “this indicates that more firms will continue to hire new workers than those that indicated otherwise…”.
Fewer firms also plan to expand in the next quarter, with the percentage dropping to 31.1 percent from 32.8 percent for those in the industry sector.
Average capacity utilization for the current quarter, meanwhile, was also slightly lower at 76 percent from 76.7 percent for the industry and construction sectors.
Tighter financial conditions
The BSP said firm continue to expect better financial conditions and easy access to credit despite the financial conditions index staying in negative territory at -0.9 percent for the fourth quarter.
“This means that firms that expected tighter financial conditions continued to outnumber those that said otherwise,” the central bank said.
“However, firms were of the view that their financing requirements could be met through available credit as respondents reported easy access to credit.”
Survey respondents also expect inflation to increase but stay within target, the peso to depreciate and interest rates go up for the current and next quarters.
“Respondents who expected inflation to go up continued to outnumber those that held the opposite view for the current and next quarters. The number of respondents with views of higher inflation increased for Q4 2017 but declined for Q1 2018 relative to the previous quarter’s survey results,” the Bangko Sentral said.