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Business Expectations Indicate Improving Sentiment for First Quarter 2001


Based on the results of the Business Expectations Survey (BES) conducted in October 2001 by the Bangko Sentral ng Pilipinas, expectations on key leading indicators point to a still weak but improving business outlook in the first quarter of 2002. Results, however, indicate a bearish business outlook for the economy for the fourth quarter of 2001.

Weak but improving outlook for the first quarter 2002

For the first quarter of 2002, respondent firms are anticipating business conditions to remain weak as indicated by the overall diffusion index of –9.8 for the quarter.[1] This showed that respondents with a negative outlook still outnumbered those with a positive outlook. This was, however, an improvement from the more bearish outlook for the fourth quarter this year. This could be due partly to market perception of a continued global slowdown, particularly in the US and Japanese economies, but at the same time qualified by the hope that the Afghan war could be resolved earlier than expected.

Bearish business outlook for the fourth quarter

The overall business outlook of respondent enterprises for the fourth quarter of 2001 turned bearish, with a –32.6 diffusion index. This was a marked shift in perception from the third quarter survey’s positive expectations for the October–December period. The ongoing global slowdown together with the September 11 terrorist attacks in the United States and their aftermath, contributed largely to the change in business outlook.

Limiting factors and expansion plans

Among the factors that are viewed to limit business activity during the fourth quarter are competition and insufficient demand. Only about a quarter of the respondents have intentions to expand operations in the first quarter of 2002.

Starting the second quarter of 2001, the BSP has conducted 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 fourth quarter survey, which was conducted in October with 184 respondent firms, had a 36 percent response rate compared with the 35 percent response rate during the previous quarter.


[1] The Diffusion Index (DI) 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 DI indicates a positive view, except for the average inflation rate, the average peso-dollar rate and the average peso-borrowing rate, where a positive DI indicates the opposite.

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