Business sentiment turns bullish in Q2 — BSP survey

Business confidence in the first quarter this year continued to take a hit from inflation, stiff competition and the strong El Niño bad weather but sentiments could turn more bullish in the second quarter and in the next 12 months due to company expansions and easing of price pressures on crucial products, according to a Bangko Sentral ng Pilipinas (BSP) survey.

In the latest Business Expectations Survey (BES) report released Friday, April 12, BSP Senior Director Redentor Paolo M. Alegre Jr. of the Department of Economic Statistics said that while business confidence is not that optimistic during the months of January, February and March, prospects for April, May and June are viewed as better due to higher demand for products and services among other factors.

Alegre in a press briefing Friday noted that business sentiment in the first quarter was less upbeat with an overall confidence index (CI) of 33.1 percent, lower than the 35.9 percent in the fourth quarter 2023. A lower CI means decrease in the percentage of optimists and increase in the percentage of pessimists.

The lower CI was due to concerns over the following: post-holiday decline in demand for goods and services and slowdown in business activities; persistent inflationary pressures stemming from higher food and oil prices and its impact on the economy; stiff competition; and adverse effects of a strong El Niño event in 2024 on the agriculture sector

“Firms’ confidence turns less bullish in Q1 2024 (but) business sentiment is more buoyant for the second quarter,” said Alegre.

For the second quarter 2024, business confidence is expected to improve based on the overall CI of 48.1 percent which was higher than 38.2 percent in the fourth quarter BES.

The optimistic outlook was due to the following: higher demand for products and services; completion of more projects due to a more conducive business environment; seasonal uptick in business activities in the tourism and fisheries sub-sectors during the summer and open fishing season; business expansions and development of new products; and easing inflation.

Alegre said firms expected the tight financial conditions – in terms of cash or liquidity positions — and access to credit during the first quarter this year.

The businesses’ sentiment are affected by market forces. Businesses expect a stronger peso versus the US dollar, but they also see higher inflation and interest rates in the first two quarters of 2024 and in the next 12 months.

According to the report, “businesses expect that the peso may appreciate against the US dollar, and the inflation and peso borrowing rates may rise in the first half of 2024 and the next 12 months.”

“Further, firms expect that inflation may remain above the upper end of the National Government’s 2–4 percent inflation target range for 2024-2026. In particular, businesses expect that the inflation rate may average at 5 percent in the first half of 2024 and the next 12 months,” said BSP, citing the BES.

Based on the survey, for the next 12 months, the overall CI also increased to 60.8 percent from 54 percent in the last quarter of 2023. The optimism stems from: sustained strong demand for products and services; continued favorable economic conditions; lower inflation; business expansions; and lower interest rates.

The report said business sentiment across all sectors is more optimistic for the second quarter and the next 12 months. Specifically, while it was less upbeat for the industry and wholesale and retail trade sectors, it is more hopeful in terms of prospects for the construction sector and services sector.

Meanwhile, capacity utilization increased in the first three months of 2024, based on the survey. The report cited the average capacity utilization in the industry and construction sectors which increased to 72.3 percent in the first quarter from 70.9 percent in the fourth quarter in 2023.

“Moreover, businesses, in general, may hire more workers while industry sector firms, in particular, may expand their product lines or production capacity for Q2 2024 and the next 12 months,” according to the survey.

The current BES was conducted between Jan. 5 to March 12. It covered 1,525 firms nationwide, of which 581 companies are located within the National Capital Region or NCR and 944 firms are in areas outside of the NCR. — Lee C. Chipongian