By Elijah Joseph C. Tubayan, Reporter
BUSINESSES OPTIMISM softened this quarter from the past year amid rising commodity prices — marking the third straight quarter-on-quarter dip and the lowest point since 2010 — although the outlook for the next three months improved on expectations of higher consumer demand ahead as Christmas holidays approach.
Results of the latest Business Expectations Survey conducted by the Bangko Sentral ng Pilipinas (BSP) showed 30.1% of respondents remained upbeat in the third quarter, 9.2 points less than the 39.3% in the preceding three months and 7.8 points lower than the overall confidence index recorded July-September 2017.
The index declined for the third consecutive quarter, with the latest reading the lowest since the 39.1% posted in the first quarter of 2010, according to Redentor Paolo M. Alegre, Jr., head of the BSP Department of Economic Statistics.
He attributed the “weaker sentiment” to “increasing prices of basic commodities in the global market, augmented by the effects of the implementation of the Tax Reform for Acceleration and Inclusion (TRAIN) law on prices of domestic goods.”
Other factors include “rising overhead costs and lack of supply or raw materials, seasonal factors such as interruption of business activities and lower crop production during the rainy season, slack in consumer demands as households prioritized enrollment expenses, as well as the suspension of commercial fishing in Davao Gulf from June to August, the weakening peso, and stiffer competition.”
The survey covered 1,466 firms between July 2 and August 29 — drawn from the combined list of the Securities and Exchange Commission’s Top 7,000 Corporations in 2010 and BusinessWorld’s 2016 Top 1,000 Corporations in the Philippines — and compares the number of respondents optimistic about their prospects versus those who were pessimistic. A positive reading means optimists outnumbered pessimists.
Firms inside and outside of Metro Manila both became less optimistic in the third quarter, with those within the National Capital Region (NCR) logging a lower confidence index of 29.7% from 37.3% in the previous quarter and 37% a year ago.
Businesses outside NCR meanwhile saw a decline to 30.9% from 43% in the previous quarter and 39.7% a year ago.
The “next quarter” outlook, however, improved to 42.6% from the second quarter’s 40.4% though it was less than the year-ago 51.3%.
“This suggests growth may be sustained in the last quarter of 2018,” the central bank noted, adding that besides the expected seasonal uptick in consumer demand and more favorable weather, “positive outlook was likewise driven by respondents’ expectations of more favorable macroeconomic conditions in the country for the next quarter… sustained foreign investment inflows and the steady stream of overseas Filipinos’ remittances” that fuel household spending.
The BSP said that business sentiment across sectors fell for the current quarter as respondents reported “sluggish consumer demand during the rainy season… higher input costs brought about by rising commodity prices, weakening of the peso, and increasing minimum wage requirements.”
The BSP said that wholesale and retail trade sectors saw the biggest decline in confidence due to “stiffer competition and effects of weather disturbances as reasons for their less favorable outlook.”
Services also turned less upbeat — particularly the financial intermediation, real estate and transportation sub-sectors — due to “high-interest rates and the unfolding trade war between the US and China.”
Importers said they were largely affected by “lower consumer demand during the rainy season, while exporters “expressed concerns over the disruption of normal operations, resulting from annual plant overhauling and port congestion issues as well as reduction in export orders.”
Industry firms’ outlook became less buoyant as they anticipate lower export orders, lack of raw materials, annual overhauling of machineries, and the closure of high seas in the international waters for fishing activities.
Construction firms were also less optimistic, as construction slowed during the rainy season, as well as the increase in costs of components such as fuel, and spare parts, as well as the cost in machine maintenance.
Overall, “the survey results showed that businesses anticipated inflation to increase, the peso to depreciate, and interest rates to go up for the current and next quarters,” Mr. Alegre said, adding that “[b]usinesses expected that the rate of increase in commodity prices will breach the upper end of the government’s 2-4% inflation target range for 2018.”
The Philippine Statistics Authority reported on Wednesday that headline inflation clocked in at 6.4% in August — the highest in nearly a decade and marking the eighth straight month of a faster overall rise in prices of basic goods and the sixth consecutive month that such monthly pace breached the government’s 2-4% full-year forecast for 2018. August fueled year-to-date inflation to 4.8% against the government’s upward-revised 4.9% full-year forecast average.
The survey also indicated that firms expect tighter financial conditions, although their financing requirements could be met as they still reported easy access to credit.