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Business Outlook Positive in Q4 of 2005 and Q1 of 2006

11.18.2005

Latest Business Expectations Survey (BES) of the BSP for the fourth quarter of 2005 indicates that firms were optimistic as the overall diffusion index (DI) recovered to 2.8 percent compared to -10.4 percent in the previous quarter. This positive business confidence was maintained up for the first quarter next year, as indicated by a DI of 11.3 percent, albeit lower than the 18.1 percent DI in the previous quarter’s survey.  

NCR respondents expected better business conditions for the fourth quarter as the overall DI, while still negative, rose to -0.8 percent from -13.0 percent. The positive business outlook will continue onto the next quarter as the DI registered 11.0 percent. On the other hand, AONCR respondents were more bullish in their business outlook with the DIs for the current and next quarters, higher than those of NCR. 

Increased consumer demand, harvest season income, and dollar remittances and export receipts improve business outlook in the fourth quarter  

Respondents attributed their positive business outlook during the quarter to the following: (1) increased volume of sales due to Christmas-related demand; (2) higher expectations for income due to the harvest season; and (3) increased dollar remittances from overseas Filipino workers (OFWs) and export receipts.  

Volume of business activity expands in the fourth quarter of the year and is sustained in the next quarter 

Expectations for better economic performance in the fourth quarter are supported by the expansion in the volume of business activities with an index of 17.0 percent from 0.7 percent in the previous quarter. Diffusion indices for both the NCR and AONCR reflected these heightened business activities, registering 17.3 percent and 16.2 percent, respectively.   

The outlook for overall volume of business activity index showed similar trends for both NCR and AONCR, with indices remaining positive in the next quarter. 

Credit access and financial conditions improve while capacity utilization remains stable in the fourth quarter of 2005 

Respondents in NCR expected indices for business-related factors such as credit access and financial conditions, to improve slightly. Meanwhile, as that in the previous survey, respondent firms in AONCR viewed that credit access will remain the same in the fourth quarter while financial conditions will improve during this quarter. Meanwhile, overall capacity utilization index at 73.5 percent was steady in the current quarter from the previous quarter’s survey of 73.3 percent. NCR firms anticipated a lower average capacity utilization index of 70.9 percent in the current quarter, from last quarter’s 71.4 percent.  However, AONCR firms registered a slight improvement in capacity utilization at 76.2 percent from last quarter’s 75.3 percent. 

Employment outlook index is down in both the NCR and AONCR 

Employment outlook, mainly in the transport, community and social services sector, will be weaker in the next quarter as the index declined to -0.5 percent from the previous survey’s 7.3 percent. Employment outlook index of respondents from both the NCR and AONCR decreased to 1.6 percent and -4.2 percent, respectively. The principal reason cited was the possible wage adjustment that could reduce their competitiveness and business prospects.

Risks to business expansion  

Respondents cited that the biggest risks which could slow down business expansion in the country are the prolonged political noise, the additional tax burden brought about by the implementation of the RVAT law, and the continued rise in oil prices.  

Other major risks to business which were ranked highly by the respondents in all sectors were as follows: stiffer competition, insufficient demand, unclear economic laws particularly on taxation, financial problems, and high interest rates. 

Expectations on selected economic indicators 

Rising inflation rate, higher domestic borrowing rate, and a generally stable peso are anticipated by survey respondents in the current quarter and in the first quarter of 2006. 

Response rate 

A total of 878 firms were surveyed: 459 companies were located in NCR and 419 firms were in areas outside NCR (36 in Region I, 98 in Region III, 123 in Region IV, 101 in Region VII and 61 in Region XI). The combined survey response rate for this quarter is 71.4 percent: 84.5 percent for NCR and 57.0 percent for the selected regions outside NCR. The Fourth Quarter 2005 BES was conducted from 3 October to 8 November 2005.

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