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Second Quarter Business Outlook Remains Fragile But Expectations are Upbeat for the Third Quarter


We released today the results of the business expectations survey  (BES) conducted in the second quarter of 2001 by the Bangko Sentral. The results indicate a still uncertain overall business outlook for the economy in the second quarter of 2001. By contrast, expectations regarding key leading indicators point to a more positive business outlook in the third quarter of 2001.

In the second quarter of 2001, the BSP has started to conduct the BES using the harmonized set of core questions for Asian countries suggested by the Asian Development Bank (ADB) under its financial and monetary regional technical assistance (Reta 5938) project.  The survey covers 12 major industry groups, with firms drawn from the top 3,000 corporations in metro manila as listed by the Securities and Exchange Commission (SEC). The second quarter survey was conducted in May, with 115 respondent firms, representing a 26 percent response rate. 

Uncertain business outlook for the second quarter 

The overall business outlook of sample enterprises for the second quarter of 2001 remains largely uncertain, with a diffusion index of 1.7 index points (a number close to zero) indicating that the number of respondents that have a positive outlook approximates those with a negative outlook. 1 This reflects in large part the wait-and-see attitude of the nation still focused on the May election and its results. Although a generally ambivalent business sentiment still prevails in the second quarter, some improvement in business tendencies have been noted.

More upbeat outlook for the third quarter 

By contrast, respondent firms are anticipating more positive business conditions for the third quarter of 2001 as indicated by the diffusion index of 44.3 index points for the quarter.  This is supported by the expected increase in the volume of production or business activity. Import orders for raw materials are likewise expected to increase following the anticipated rise in the volume of production. Such a favorable outlook on business conditions and on the financial position of firms is accompanied by expectations of improving market prices, particularly in the real estate and community and social services sectors, as a result of the anticipated rise in demand. Expectations of the positive impact of the market-friendly policies and of the reformist platform of the new administration on the economy could explain this favorable outlook for the third quarter.           

Limiting factors and expansion plans 

Among the factors that are viewed to limit production or business activity during the second quarter are competition, insufficient demand, high interest rates, access to credit and unclear economic laws. Meanwhile, out of the 115 respondents, 67.8 percent gave no definite answer on expansion plans for the third quarter. Only around 18.3 percent of the total respondents disclosed their intentions to expand operations.


1 The Diffusion Index is computed as follows: (1) for the “business outlook” variable: percentage share of firms that have an “improving” outlook less percentage share of firms that have a “deteriorating” outlook; (2) for the other business variables: percentage share of firms that answered that a given indicator would go “up” less percentage share of firms that answered that a given indicator would go “down”. With respect to these business variables, a positive diffusion index indicates a positive view, except for the average inflation rate, the average peso-dollar rate  and the average peso borrowing rate, which indicate the opposite

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