Q2 business optimism up on election spending

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PHILIPPINE businesses turned more optimistic about the prospects of the economy for the second quarter mainly due to robust election-related spending, driving the confidence index up nearly 7 percentage points, data released by the Bangko Sentral ng Pilipinas (BSP) on Friday showed.

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Diwa Guinigundo, deputy governor of bangko Sentral ng Pilipinas. PHOtO By RENE H. DILAN

Diwa Guinigundo, deputy governor of bangko Sentral ng Pilipinas. PHOtO By RENE H. DILAN

However, the outlook for the third quarter declined from the previous survey largely because of the onset of the rainy season and expectations that oil prices will be higher.
For the April to June quarter, the overall business confidence index (CI) rose to 48.7 percent from 41.9 percent in the January to March period, results of the central bank’s Second Quarter 2016 Business Expectations Survey (BES) showed.

“This indicates that more businesses were optimistic about the country’s economic prospects for the second quarter of the year compared to the previous quarter,” it said.
Respondents cited the following factors for their second-quarter outlook: election-related spending in the run-up to the May 9 national elections; sustained increases in orders and projects leading to higher volumes of production; anticipated increase in demand during summer with the expected influx of both local and foreign tourists, and school enrollment periods; introduction of new and enhanced business strategies and processes; expansion of businesses and new product lines; and improving conditions in the local economy as well as in some advanced economies, particularly in Asia.

The latest BES, which polled 1,482 firms nationwide, was conducted from April 1 to May 17. 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 local sentiment also reflected a similar trend overseas, with improving business outlooks in South Korea, Canada, France, and the Netherlands. However, it was in contrast to the deteriorating views of firms in the United States, United Kingdom, Germany, China and Australia.

The outlook for the third quarter declined from the previous survey with the CI dropping 45.3 percent from 49.6 percent.

Respondents gave the following reasons for their less sanguine outlook: interruption of business activities during the rainy season; lower consumer demand as households prioritize enrollment expenses; and expectations of higher oil prices.
‘More than meets the eye’

Business sentiment shows an uptick “as evidenced by the strong importation of capital goods, and this may belie a more medium term view of optimism that extends beyond the elections,” Nicholas Antonio Mapa, associate economist at the Bank of the Philippine Islands, said.

Mapa noted that second-quarter growth is seen to top the first-quarter numbers as the economy benefits from the deluge of funds spent for the campaign.

“But I feel there’s more than meets the eye and it’s not merely election-related as incomes are high, interest rates low and inflation benign. All are ingredients for a strong consumption-driven economy,” he added.

Supporting Mapa’s view, the survey showed that the outlook of businesses involved in international commodity trading turned broadly more favorable in the second quarter.

Among business types, importers and domestic-oriented firms were the most optimistic, as they expected economic growth will be driven by higher consumer demand during the summer, enrollment, and election period, as well as business expansion and introduction of new product lines.

Meanwhile, the improved optimism of exporters stemmed from rising commodity prices, particularly nickel and gold, and an anticipated increase in volume of production with the ongoing infrastructure developments, new equipment and enhanced irrigation systems.

The outlook of dual-activity firms, however, was broadly steady.

For the next three-month period, the sentiment across different types of businesses was mixed.

“The outlook of importers continued to improve compared to that of the previous quarter with the sustained expansion of business, additional product lines, enhanced marketing strategies, new projects, healthy competition among firms, and confidence in the change of administration,” the survey said.

The BES said the sentiment of exporters was steady as the positive effects of higher metal prices, increase in production volumes, and improvement in weather forecast were tempered by stiffer competition and the spillover effects of El Niño.

“Meanwhile, dual-activity and domestic-oriented firms’ outlook was less sanguine largely due to the typical slack in demand during the rainy season,” it said.

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