Business sentiments weakens in Q3 – BSP survey

Filipino businessmen are less optimistic when considering third quarter prospects for earnings and growth amid high inflation, the rainy season, weak peso and wage increases.

Based on the BangkoSentral ng Pilipinas’ (BSP) latest Business Expectations Survey (BES), which is the third quarter business sentiments and conducted in July to August, they have a less upbeat outlook due to the sluggish consumer demand during the rainy season and higher input costs due to rising commodity prices. These are all underpinned by increasing minimum wages and a peso that is still depreciating. “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. Businesses expected that the rate of increase in commodity prices will breach the upper end of the government’s two-four percent inflation target range for 2018, at 4.7 percent for the third quarter and 4.8 percent for the fourth quarter (from 3.8 percent for both periods in the previous quarter’s survey results),” according to the BSP.

The BES indicated an overall confidence index (Cl) of 30.1 percent, the lowest level since the first quarter of 2010, and shows there are more pessimists than optimists, and a lot more negative sentiments than the previous surveys.

The central bank reported that the overall weaker sentiment during the third quarter was due 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; and rising overhead costs and lack of supply of raw materials.

Businesses also pointed to seasonal factors such as interruption of business activities and lower crop production during the rainy season as downer, as well as the slack in consumer demand as households prioritized enrollment expenses. The suspension of commercial fishing in Davao Gulf from June to August also dragged down sentiments. The weakening peso was always mentioned in every segment, the same as stiffer competition.

The BSP said the business sentiment looking ahead – in the fourth quarter – seemed to be more upbeat as CI was up to 42.6 percent from 40.4 percent in the previous quarter’s survey results. This suggests that growth may be sustained in the last quarter of 2018, it said.

The better outlook for the next quarter was due to the following: uptick in consumer demand during the holiday and harvest seasons; continued increase in orders and projects; expansion of businesses and new product lines; and continued rollout of government infrastructure and other development projects.

Two more reasons for the upbeat sentiment for the fourth quarter are favorable weather conditions for agricultural products, and (opening of high seas/fishing operations in October. “Positive outlook was likewise driven by respondents’ expectations of more favorable macroeconomic conditions in the country for the next quarter (particularly robust GDP growth), sustained foreign investment inflows and the steady stream of overseas Filipinos’ remittances,” said the BSP.

The latest BES was participated in by 1,466 firms nationwide. These include 583 companies in the National Capital Region and 883 firms in areas outside of the NCR.