Business confidence weakens in Q3 — BSP survey

Filipino businessmen are less optimistic in terms of operations and potential profits in the third quarter this year amid higher prices of raw materials due to bad weather, low sales and weak demand for services, according to a Bangko Sentral ng Pilipinas (BSP) survey.

The central bank’s quarterly Business Expectations Survey (BES), conducted between July 5 to Aug. 15 also blamed the elevated inflation and peso depreciation for the overall confidence index (CI) which declined to 35.8 percent in the third quarter from 40.8 percent in the second quarter or April, May and June.

The CI is computed as the percentage of firms that answered in the affirmative less the percentage of firms that answered in the negative with regard to their views on the overall business outlook

However, these same surveyed companies have a more bullish outlook in the fourth quarter which is the “Ber” months, and in the next 12 months, according to BSP Senior Director Redentor Paolo M. Alegre, who presented the BES and the Consumer Expectations Survey on Friday, Sept. 22.

But for the current quarter, BSP said the firms’ less optimistic sentiment was attributed to: decline in sales and demand for goods and services mainly due to weather-related disruptions and other seasonal factors; and the higher prices of raw materials and production costs.

The BES said the business sentiment for the next quarter or the months of October, November and December, as expected is more “buoyant” with an overall CI 53 percent, up from 46.4 percent in the previous survey.

Companies’ more bullish outlook in the fourth quarter stemmed from: stronger demand for products and services and higher revenues mainly driven by holiday spending and other seasonal factors such as the peak of sugar milling season; better economic conditions amid the lifting of the state of public health emergency due to Covid-19; more expansion and business opportunities; and new customers and projects.

For the next 12 months, the survey noted that business confidence is also on the optimistic side with an overall CI of 59.7 percent versus 58.5 percent in the previous quarter.

The reasons cited for the positive outlook are: brisker demand for goods and services across all sectors; improved business climate amid a fully reopened economy; further expansion and new business opportunities; additional clients and projects; and easing inflation.

Generally, based on the survey, businesses expect less tight financial condition and access to credit for the third quarter.

Firms expected their financial condition and access to credit to be less tight as their corresponding indices became less negative at -15 percent (from -16.7 percent) and -0.2 percent (from -2.7 percent), respectively.

“This means that the number of firms that expect tight financial conditions and access to credit decreased, but continued to outnumber those that said otherwise, during the current quarter,” said the BSP.

For most businesses, they expect the peso may appreciate against the US dollar while the peso borrowing rate will likely increase until the last quarter of 2023.

Based on the BES, firms are anticipating that the peso-dollar rate may average at P55.2:$1 for the third quarter and P55.1 for the last quarter of 2023 and in the next 12 months.

Meanwhile, the BSP said businesses expect inflation will continue to be elevated in the second half of 2023 but may decline in the next 12 months.

It noted that the expectations among businesses is that inflation will further ease in the next 12 months. However it remains on the high side as they see it averaging at 5.9 percent for both the third and fourth quarters and at 5.7 percent for the next 12 months.

Business sentiment across all sectors is mainly less buoyant for the third quarter, said the BSP. The CIs of the industry, services, and wholesale and retail trade sectors declined, while that of the construction sector increased.

The BES noted that business outlook across all types of trading firms is less upbeat for the same period. Importers, exporters, dual-activity and domestic-oriented firms were less optimistic in the current quarter.

Capacity utilization was lower in the third quarter. The average capacity utilization in the industry and construction sectors for decreased slightly to 70.5 percent from 71 percent in the second quarter.

The latest BES surveyed 1,549 firms in 16 regions, of which 583 companies are in the National Capital Region (NCR) and 966 are in areas outside of the NCR.

The BES basically is a quarterly survey of firms drawn at random from the list of the top 7,000 corporations in the country. — Lee C. Chipongian