Businesses more optimistic as 2014 closes – BSP survey

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Businesses more optimistic as 2014 closes – BSP survey
The optimism is boosted by expectations of stronger domestic demand, but outlook for the first quarter of 2015 is less favorable, the Bangko Sentral ng Pilipinas survey shows

MANILA, Philippines – More businesses are optimistic about the country’s economic prospects in the last quarter of the year, the latest Business Expectations Survey of the Bangko Sentral ng Pilipinas (BSP)  revealed.

Released on Friday, November 21, the survey showed that the overall confidence index (CI) – or the computed percentage of firms that responded in the affirmative minus the percentage of those not optimistic – significantly rose to 48.3% from 34.4% in the 3rd quarter this year

The survey participants who responded more positively cited the following as boosters for their optimism:

  • The expected increase in consumer demand during the Christmas and main palay harvest seasons
  • The sustained increase in orders and projects leading to higher volume of production
  • The expansion of businesses and new product lines
  • The introduction of new and enhanced business strategies and processes

Expectations on the accelerated rollout of infrastructure and other development projects under the public-private partnership (PPP) program, along with favorable macroeconomic conditions like stable inflation and low interest rates; sustained foreign investment inflows; and steady stream of Overseas Filipino Workers (OFW) remittances also further drove optimism, the survey showed.

The optimistic sentiment of businesses in the country mirrored the more favorable outlook in Canada, New Zealand, and Hong Kong SAR.

It is opposite though to the weaker outlook of businesses in the US, the United Kingdom, Germany, China, Singapore, and India.

Bullish for yearend

Importers showed the biggest improvement in sentiment for the fourth quarter this year, responding that their improved outlook was due to continuous business expansion, new product launches, and system upgrades, the BSP survey showed.

Exporters were also more optimistic, citing as reasons to be bullish abundant raw materials; increase in orders during the holiday season; transfer of production operations to the Philippines (i.e., from China and Thailand); and expectations of more projects to be awarded (for power generation).

Financial intermediation posted the highest confidence index, with respondents giving a thumbs up to the opening of new bank branches due to BSP’s recent liberalization of branching regulations; increase in demand for credit by consumers; and higher remittances from overseas Filipinos during the holiday season.

Hotels and restaurants also are collectively the most improved sector as firms anticipate brisker business in the last quarter of the year, attributed to the convention season.

Construction firms also posted higher outlook versus a quarter ago as respondent firms expected the acceleration of construction activities, both public and private, in the last quarter of 2014. The ongoing infrastructure projects and continuation of existing projects or order bookings are reasons for optimism across sub-sectors, the BSP survey showed.

The overall sentiment of firms on their own operations was also in the current quarter, attributed to volume of business activity and total orders, which is also seen to be more robust across sectors, except for the construction sector which remained steady, the survey showed.

Overall, confidence readings in the fourth quarter were higher across all sectors, particularly the wholesale and retail trade sector as the most bullish in the current quarter, citing more robust domestic demand during the Christmas season. 

Slowdown from the holidays

Investment intentions in the industry sector declined though, with 32% of firms indicating expansion plans versus 34.2% in the previous quarter. Only mining and quarrying recorded stronger expansion plans among the sub-sectors. Also, the average capacity utilization for the current quarter stayed steady at 76.9% from 76.5% a quarter ago.

Firms that expected tighter financial conditions continued to outnumber those that said otherwise. More respondents also continued to report easy access to credit.

For the first quarter of 2015, the BSP survey showed that businesses are less optimistic with the CI at 43.1%.

“The next quarter CI suggests that the optimists continued to outnumber the pessimists but the number of respondents with favorable views declined relative to the previous quarter’s survey results,” BSP said.

The typical downturn in demand following the holiday season is the main reason for the less buoyant optimism in the first quarter 2015.

The backlog in deliveries caused by the port congestion problem and a looming power crisis, plus the uncertainties in the global economy particularly emanating from Europe and Japan, also contributed to the businesses’ pessimism for the first quarter of 2015.

Businesses though expected that the rate of increase in commodity prices is likely to stay at 4.3% in both the current quarter and the first quarter of 2015.  The BSP survey showed, though, that this was slightly higher than 4.2% in the previous quarter’s survey results.

“Nonetheless, these continue to be within the 3% to 5% target range in 2014,” the BSP noted.

Also, more respondents expected the peso to appreciate in this quarter and the first quarter next year, and interest rates were also expected to increase in the same periods.

The BSP’s Business Expectations Survey was conducted from October 1 to November 13 this year, with 1,518 firms surveyed nationwide.

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