Rising prices, weaker peso slightly hurt business confidence in Q2 2018

MANILA, Philippines – The Bangko Sentral ng Pilipinas (BSP) announced that business confidence slightly declined for the 2nd quarter of 2018, based on the results of its Q2 2018 Business Expectations Survey (BES).

The results of the survey, released on Thursday, May 31, showed that the overall confidence index (CI) was at 39.3% for the 2nd quarter of 2018, a slight decline from the 39.5% for the 1st quarter, though still considered “steady.”

“This means that the optimists continued to outnumber the pessimists but the margin was almost unchanged from that of a quarter ago,” said the BSP.

Rising prices, weaker peso

The central bank attributed “the slight dent on optimism” to the following:

• expectations of higher prices of goods, including fuel price hikes
• the weakening of the Philippine peso against the United States dollar 

Inflation, or the movement of prices of basic goods and services, had risen to another 5-year high back in April, hitting 4.5%. The government’s inflation target range for 2018 is between 2% and 4%.

Based on the Q2 2018 BES, 63.5% of respondents expect a higher inflation rate, compared to 61.3% in the previous quarter’s survey. (READ: Diokno on high fuel prices: ‘We should be less of a crybaby’)

The Philippine peso, meanwhile, has depreciated by about 5%. More businesses expect the local currency to weaken further, from 11.7% of respondents in the previous quarter’s survey to 22.7% in the Q2 2018 BES.

Last May 10, the BSP had raised the benchmark interest rate by 25 basis points to 3.25% in a bid to help the economy withstand rising inflation and the weakening peso. It was the first time since September 2014 that the central bank had hiked interest rates.

Outlook ahead

But the optimism remained steady in the Q2 2018 BES, said the central bank, because of:

• the usual higher demand during summer, enrollment, and harvest periods
• an increase in orders and volume of production
• the government’s infrastructure projects under Build, Build, Build
• a “positive view” of the Tax Reform for Acceleration and Inclusion (TRAIN) law as a revenue-generating measure
• the expansion of businesses
• “sound macroeconomic conditions”

For the 3rd quarter of 2018, however, the BSP said the business outlook is less positive.

The CI for the 3rd quarter of 2018 is now 40.4%, lower than the 47.8% in the previous quarter’s survey.

The BSP said respondents cited the following reasons:

• interruption of business activities during the rainy season
• low consumer demand as households prioritize enrollment
• continued expectations of higher prices of goods

The Q2 2018 BES was conducted from April 2 to May 22, with 1,466 firms surveyed nationwide. – Rappler.com