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Business optimism has continued to improve, the Bangko Sentral ng Pilipinas (BSP) yesterday reported, with companies said to be banking on increased demand and improved economic conditions.
Results of the central bank’s latest Business Expectations Survey (BES) showed the confidence index -- the percentage of respondents who answered in the affirmative minus the percentage of those saying otherwise -- at 44.5% for the current quarter, up from 40.5% three months earlier.
The result -- the fourth consecutive quarterly improvement -- suggests that economic growth could pick up in the April-June period, the BSP said, noting that respondents had pointed to an increase in orders and new contracts/projects, business expansions, increased state spending, a seasonal uptick, and favorable macroeconomic conditions.
"The sentiment of businesses in the Philippines mirrored the improved business outlook globally, particularly in the US, Germany, Australia, New Zealand, Hong Kong, Korea and Singapore," the central bank said.
Third quarter economic growth, however, could slow as the BSP said the confidence index for the next three months declined to 44.6% from 55.4%.
"This is due in part to expectations of slower demand and slack in business activity during the rainy season in the industry, wholesale and retail trade and services sectors," it said.
Breaking down business sentiment into inside and outside Metro Manila, the BSP said these tracked the national trend of having risen for the current quarter but turning "less sanguine" for the next three months. Optimism was greater for Metro Manila respondents, it added.
Companies engaged in international commodity trading were more optimistic, with importers the most bullish and exporters notching the biggest improvement given high metal prices and strong output volumes. Dual-activity firms also reported increased optimism for the second quarter.
"For Q3 2012, even as the overall business outlook was less optimistic, the outlook of exporting firms improved compared to a quarter ago while those of the importers and dual-activity firms declined, similar to the national trend," the BSP said.
By workforce size, larger firms were the most upbeat with regard to the second quarter. Again, sentiment dropped across the range for the next three months.
By sector, the second quarter outlook was "broadly more bullish", the BSP said, led by construction and followed by services and industry. For the next quarter, sentiment again turned less favorable with the construction sector being the exception.
Construction hit an all-time confidence index for the second quarter, the central bank noted, with respondents looking forward to planned Public-Private Partnership (PPP) projects this year and the implementation of private sector expansion plans.
Sentiment in the services sector, meanwhile, continued to improve. Said to be responsible were favorable business conditions, an upsurge in investments and robust consumer demand, due partly to seasonal factors such as preparations for the school year and tourism.
For the industry sector, a similarly upbeat outlook was traced to demand from both the domestic and overseas markets, planned business expansion, increased state spending, stable prices of basic commodities, and brighter economic growth prospects.
The outlook of wholesale and retail trade firms, on the other hand, dipped due to high power costs and stiff competition.
"On account of the mixed outlook on business activity for Q2 and Q3 2012, firms’ confidence about their own operations across sectors did not show an improvement," the BSP added, with the services and construction sectors broadly steady while industry and wholesale and retail trade declining.
The financial conditions outlook, meanwhile, turned less pessimistic, improving for another quarter while staying negative. Firms were also of the view that funding needs could be met via available credit, the central bank said.
"Another indicator supporting expectations of sustained growth in 2012 was the employment outlook index for the next quarter, which remained positive although lower at 22.1%," the BSP also said.
With regard to expansion, some three in 10 industry sector respondents pointed to third quarter plans. Mining and quarrying led followed by agriculture. Related to this, the BSP said average capacity utilization for the current quarter hit 76.2%, the highest reading since the third quarter of 2008.
The top three business constraints identified, meanwhile, were competition, insufficient demand (leading to low sales), and unclear economic laws.
Respondents expect a stronger peso as well as higher inflation, although a dip for the latter was interpreted by the BSP as indicating that "inflation expectations remained well anchored, even against expectations of strengthening prospects for domestic economic activity."
For the next quarter, meanwhile, "the number of respondents that anticipated higher inflation increased due to expectations of higher oil prices given concerns of continuing tensions in the Middle East and pending petitions for electricity rate adjustments."
Interest rates were expected to remain broadly steady but rise in the third quarter.
The latest BES was conducted during from April 2 to May 11. A total of 1,587 firms was surveyed, with a response rate of 79.6%.
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Source: BusinessWorld, May 25, 2012
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