• Low optimism for Q3 but Q4 looks good

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    Businesses in the Philippines turned slightly less optimistic about the prospects of the economy for the third quarter, according to a central bank survey.

    The reasons for this turn—which is consistent with a private bank outlook of an economic slowdown for the remaining months of the year—are mainly seasonal factors and stricter mining policies.

    Meanwhile, the outlook for the fourth quarter is upbeat, with the CI rising from the previous survey’s 45.3 percent to 56.8 percent, mainly because of the approaching Christmas season.

    The overall business confidence index (CI) for the July-September quarter fell to 45.4 percent from 48.7 percent in the April-June period, the Bangko Sentral ng Pilipinas’ (BSP) Business Expectations Survey (BES) showed.

    Commenting on the survey finding during a press briefing on Friday, the managing director at the BSP’s monetary policy sub-sector, Francisco Dakila Jr., pointed out that “although optimism was lower compared to the outlook a quarter ago, we note that the current quarterly index is the highest third quarter reading of all time.” The decline in business sentiment, he added, is “largely due to seasonal factors.”

    According to the survey, respondents cited the following factors for their third-quarter outlook: interruption of business activities during the rainy season; slack in demand during the planting and closed milling seasons; lower consumer demand as households prioritized enrollment expenses; implementation of stricter new mining policies that put some mining concessions on hold; closed fishing season in Davao Gulf from July to September; stiff competition; and concerns over the weak global economy.

    The latest BES, which polled 1,474 firms nationwide, was conducted from July 1 to August 12. Results of the survey are viewed as an indicator of the direction of overall business activity.

    The CI is computed as the percentage of firms that answered in the affirmative less the percentage of those that replied in the negative with respect to a given indicator.

    Rosabel Guerrero, director of the central bank’s department of economic statistics, said the sentiment of businesses in the Philippines mirrored the less buoyant business outlook in the United States, United Kingdom, Germany and Hong Kong, but was in contrast to the more bullish views of those in France, Italy, South Korea, India and Switzerland.

    Respondents gave the following reasons for their more upbeat outlook for the fourth quarter: the expected uptick in consumer demand during the holiday, harvest and milling seasons; increased confidence in the new administration; continued increase in orders and projects translating to higher volume of production; expansion of businesses and new product lines; introduction of new and enhanced business strategies and processes; improved farm gate prices; and opening of high seas/fishing operations in October.

    Their positive outlook was further driven by expectations of an acceleration in the roll-out of infrastructure and other development projects under the public-private partnership (PPP) program and the favorable macroeconomic conditions in the country (particularly, stable inflation and low interest rates), sustained foreign investment inflows and the steady stream of overseas Filipinos’ remittances, the survey added.

    “This finding is consistent with our expectation that there will be a brief, shallow economic slowdown in second half of 2016,” said Emilio Neri Jr., Bank of the Philippine Islands vice president and lead economist.

    However, unlike previous leadership transition cycles, Neri pointed out that the strong fiscal position that the prior administration passed on to the Duterte government will allow the latter to hit the ground running and carry out its plans with ease.

    “This will help avoid the deep and protracted slowdown we saw in 2011 when the economy grew by just 3.7 percent after a spectacular election-driven expansion in 2010,” he added.

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