THE BATTLE to take back Marawi City from Islamic militants, martial law over all of Mindanao and damage from the Visayas quake added to the weakening peso and the rainy season to weigh on business sentiment this quarter, taking the overall confidence index to its weakest in three years, the central bank reported on Friday.

The third-quarter Business Expectations Survey of the Bangko Sentral ng Pilipinas (BSP) – conducted July 3-Aug. 18 among respondents of 1,480 firms nationwide – showed that 37.9% of Philippine firms were optimistic about local prospects, declining from a 43% confidence index in the second quarter. The reading is also the lowest since the 34.4% logged in 2014’s third quarter.

“This means that the number of optimists declined but continued to be greater than the number of pessimists during the quarter,” BSP said in a press release summarizing survey results.

“The confidence level, although lowest in three years, remains… robustly positive.”

Respondents were drawn from the combined list of the Securities and Exchange Commission‚’s Top 7,000 Corporations in 2010 and BusinessWorld‚’s 2015 Top 1,000 Corporations in the Philippines, consisting of 586 companies in Metro Manila and 894 firms outside the National Capital Region.

Companies grew less upbeat as they expect weak demand crops and retail products during the rainy season.

BSP Deputy Director Marriel M. Remulla said in a press briefing on Friday that respondents also cited battle for Marawi City – which is now on its fourth month – and the subsequent declaration of martial law over all of Mindanao that will stay in place till yearend which have “affected people’s mobility to and in Mindanao.”

Other factors which affected sentiment include increasing prices, stiffer competition, damage and power outages after the magnitude 6.5 earthquake in the Visayas, along with a weaker peso.

Inflation rate picked up to 2.8% in July from the previous month’s 2.7% and the year-ago 1.9%, according to the Philippine Statistics Authority.

On the other hand, the peso traded at the P51 level to touch fresh 11-year-lows in August amid heightened market volatility.

Market players grew less optimistic across the country, the BSP said, even as it noted that firms in Southern Luzon were more upbeat about their operations on the back of strong consumer demand, business expansions and bigger government spending.

Across markets, export firms grew more bullish with a confidence of 50% from 46.9%.

On the other hand, importers reported a substantial slide in optimism with the net score down to 39.2% from 46.5% the previous quarter, as they took a hit from higher shipment costs with the peso depreciation.

Domestic-oriented firms also grew less positive as they were affected by natural calamities and the ongoing conflict in Mindanao.

By type of business, the industry sector saw improved sentiment during the quarter especially manufacturers, the BSP said. This came alongside dampened optimism among firms engaged in construction, services, as well as wholesale and retail trade, as they expect softer demand and fewer activities during the rainy season.

The firms also foresee slower growth in total orders and business activities during the quarter amid tepid demand, alongside higher interest rates, faster price increases, and a weaker peso. They likewise see tighter financial conditions between July-September, but said that any financing needs can be accessed through bank credit.

At the same time, respondents grew more optimistic towards the fourth quarter as they expect demand to rebound in time for the holiday and harvest seasons. In particular, the confidence index jumped to 51.3% from 42.7% the previous quarter, although it was lower than the 56.8% reading in 2016’s third quarter.

The continued rollout of public infrastructure projects, bigger production volumes, business expansions, favorable weather for crops, as well as the positive impact of tax reform now still pending in Congress also drove business confidence higher for the last three months of 2017.

More companies also said they expect to hire more workers between October to December, especially those in the wholesale and retail sectors. – Melissa Luz T. Lopez