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Business Confidence Turns Bullish for Q2 2015 Reversing Slight Decline for Q1 2015 Due to Seasonal Factors

02.27.2015

Business outlook is bullish for Q2 2015

Business confidence turns bullish for Q2 2015 with the next quarter CI jumping to 58.2 percent from 43.1 percent in the last survey. The next quarter CI suggests an acceleration in economic growth for the next quarter. Respondents cited the following factors as reasons behind their more bullish outlook: (a) anticipated increase in demand during the secondary harvest and open fishing seasons, graduation and enrolment periods, and summer season (with the expected influx of both local and foreign tourists), (b) sustained increase in orders and projects leading to higher volume of production; (c) expansion of businesses and new product lines; and  (d) introduction of new and enhanced business strategies and processes. Their more positive outlook was further driven by expectations of an acceleration in the roll-out of infrastructure and other development projects under the public-private partnership (PPP) program and the favorable macroeconomic conditions in the country (particularly, stable inflation and low interest rates), sustained foreign investment inflows and the steady stream of overseas Filipinos’ (OFs) remittances.

Businesses’ optimism on the economy, however, eased for Q1 2015, with the overall confidence index (CI) declining slightly to 45.2 percent from 48.3 percent for Q4 2014. This indicates that the number of optimists declined but continued to be greater than the number of pessimists during the quarter. Despite the lower quarter-on-quarter outlook, business sentiment continued to be positive on the economy as the CI increased year-on-year from the 37.8 percent recorded for Q1 2014.

Respondents attributed their less upbeat quarter-on-quarter outlook to the following:  (a) usual slowdown in business activity and moderation of consumer demand after Christmas, (b) continued effects of past typhoons on crop production and businesses,  (c) concerns over the backlog in deliveries caused by the port congestion problem, and (d) lack of supply of fish due to Indonesia’s stricter new marine laws which limit the fishing ground of local fishermen and closed fishing season for sardines. The sentiment of businesses in the Philippines mirrored the less sanguine business outlook in the UK, Singapore, Hong Kong SAR, and India, and was in contrast to the more buoyant views of those in the US, Canada, and Germany.

Across trade groups, the outlook is positive

Businesses involved in international commodity trading (i.e., exporters and dual-activity firms/export-import firms) remained optimistic for both Q1 and Q2 2015. Meanwhile, firms catering to domestic activities (i.e., domestic-oriented firms and importers) have less favorable expectations for the current quarter, but their outlook turned more upbeat for the quarter ahead.

Business confidence across sectors is mixed

Business sentiment was mixed across sectors for Q1 2015. The optimism in the wholesale and retail trade and services sectors remained high although lower compared to that in the previous quarter. Meanwhile, the industry and construction sectors registered a more buoyant outlook.

The less sanguine outlook of the wholesale and retail trade sector stemmed from expectations of a slack in consumer demand and business activities after the Christmas season, their concern over the continued effects of past natural calamities, particularly on agriculture, and stiffer domestic competition emanating from the construction of new malls. The services sector meanwhile was slightly less optimistic on account of the seasonal slack in demand for hotels and restaurants, renting and business activities, and real estate after the holiday season. 

In contrast, industry firms’ outlook turned more upbeat, particularly in the manufacturing sub-sector. Respondents’ more optimistic views were driven by the continuation of existing projects/order bookings, innovations in product design and quality, and the successive roll-back of oil prices which consequently lower firms’ production costs and increase consumers’ disposable income. The construction sector—which was the most bullish—noted that low prices of fuel and construction materials as well as expectations of favorable business conditions help sustain demand for construction services (both public and private), with new projects in the pipeline.

For the next quarter (Q2 2015), confidence readings were higher across all sectors, indicating broad-based improvement in business activities.

Outlook on business operations is less upbeat

The sentiment of firms about their own business operations was less upbeat compared to that a quarter ago. Notably, the outlook of firms in the industry, wholesale and retail trade and services sectors was less sanguine, while that in the construction sector was more buoyant. Meanwhile, the outlook on volume of total orders was mixed across sectors: edging higher for the construction sector, remaining steady for industry and less robust for services and wholesale and retail trade.

However, the outlook of firms on the volume of business activity for the quarter ahead turned more optimistic across sectors and sub-sectors, except that for the mining and quarrying sub-sector which was less positive. Business outlook was at an all-time high for the services sector.

The number of firms with expansion plans increases and capacity utilization remains broadly steady

About one in every three respondent firms in the industry sector (32.5 percent) indicated expansion plans for Q2 2015. Meanwhile, the average capacity utilization for the current quarter remained steady at 76.8 percent from 76.9 percent a quarter ago.

Firms expect better financial conditions and easy access to credit

Firms that expected better financial conditions outnumbered those that said otherwise during the quarter. Businesses were also of the view that their financing requirements could be met through available credit as more respondents continued to report easy access to credit compared to those that said otherwise.

Inflation is expected to remain low and within the 2 to 4 percent target range

The survey results showed that more respondents expected inflation to decrease in the current quarter compared to those who said otherwise. For the next quarter, respondents who expected inflation to go up outnumbered those that held the opposite view but the number that said so declined relative to the previous quarter. Businesses expected that the rate of increase in commodity prices is likely to remain low and within the 2 to 4 percent target range in 2015, at  3.9 percent for both Q1 and Q2 2015 compared to 4.3 percent in the previous quarter’s survey results. Meanwhile, more respondents expected the peso to appreciate and interest rates to increase for Q1 and Q2 2015.

About the Survey

The Q1 2015 BES was conducted during the period 5 January - 10 February 2015. There were 1,523 firms surveyed nationwide. Respondents were drawn from the combined list of the Securities and Exchange Commission’s Top 7,000 Corporations in 2010 and Business World’s Top 1,000 Corporations in 2013, consisting of 606 companies in NCR and 917 firms in AONCR, covering all 17 regions nationwide.  The survey response rate for this quarter was higher at 84.4 percent (from 84.1 percent for Q4 2014). The response rate was slightly lower for NCR at 80.2 percent (from 80.8 percent in the previous quarter) and higher for AONCR at 87.1 percent (from 86.2 percent last quarter).

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