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Business Confidence Rises for Q2 2015

05.29.2015

Business outlook is more bullish for Q2 2015

Business outlook on the economy was more bullish for Q2 2015, with the overall confidence index (CI) rising to 49.2 percent from 45.2 percent for Q1 2015. This indicates that more businesses are optimistic about the country’s economic prospects for the second quarter of the year compared to that in the previous quarter.

According to respondents, their more upbeat outlook was due to the following: (a) robust consumer demand during the secondary harvest  and fishing seasons, graduation and enrolment periods, and summer season given the expected influx of both local and foreign tourists, (b) expected increase in activities in the construction sector, particularly infrastructure-related government projects, (c) increase in orders and new contracts/projects leading to higher volume of production, (d) expansion of businesses and launch of new product lines, and (e) continuing confidence in the administration. Their more positive outlook was further driven by expectations of more 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.

The sentiment of businesses in the Philippines mirrored the buoyant business outlook in the US, Germany, Korea and Singapore but was in contrast to the less bullish views of those in UK, Hong Kong, and India.

For the quarter ahead (Q3 2015), business outlook remained optimistic, with the CI at 47.3 percent, although lower than the 58.2 percent in the previous survey. Respondents cited the following factors as reasons behind their less optimistic outlook: (a) interruption of regular business activities during the rainy season, (b) lower output (which leads to lower trade activities) during the planting season, (c) increased market competition with the establishment of new businesses which could hurt existing small- and medium- scale businesses (e.g., shopping malls, hospitals), and (d) lower consumer demand as households prioritize enrolment expenses.

The outlook of importers and exporters is more upbeat for Q2 2015

Consistent with the overall outlook, the outlook of businesses involved in international commodity trading broadly turned more favorable for Q2 2015. Among business types, importers were the most optimistic, followed by exporters. However, the outlook of dual-activity firms was less sanguine. For the quarter ahead (Q3 2015), all trading firms were less optimistic as they expected a moderation of demand with the start of the rainy season.

Business confidence across sectors is buoyant for Q2 2015

Business sentiment across sectors was more bullish for Q2 2015. For the next quarter (Q3 2015), however, the outlook was less upbeat, with the exception of those in the construction sector.

The construction sector was the most optimistic among all sectors for the current quarter, with the CI at an all-time-high. Firms belonging to this sector expected that the expansion of construction services would be sustained, particularly as more public infrastructure projects were started during the quarter. Construction activities related to power generation were also reported to be on the rise during the current quarter. The services sector was likewise more upbeat for the current quarter, generally on account of the expected better economic prospects in the country. The sanguine outlook of the wholesale and retail trade sector stemmed from respondents’ expectations of a surge in consumer demand during the summer and enrolment periods, good harvest season, continued business expansion with new product lines and infrastructure development (both public and private), low oil prices, and a favorable business climate. Respondents in the industry sector attributed their optimism to the favorable weather conditions, the onset of the fishing season, and expected increase in electricity consumption during summer.

For the next quarter (Q3 2015), the outlook across sectors was broadly less buoyant due to the expected seasonal slack in demand during the rainy season. This is with the exception of those in the construction sector whose optimism was driven by expectations of brisker activities due to the continued roll-out of government projects and new infrastructure development projects in the pipeline.

Firms are more upbeat about their own business operations

In line with the more bullish overall business confidence on the macroeconomy, the outlook of firms about their own business operations was more upbeat for Q2 2015 compared to that a quarter ago. Notably, the outlook of firms across sectors and sub-sectors was more buoyant, except for those in the hotels and restaurants, and community and social services sub-sectors which was less positive. Similarly, the outlook on volume of total orders was more robust across sectors and sub-sectors, except for those in the mining and quarrying, hotels and restaurants, and community and social services sub-sectors.

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

The percentage of businesses with expansion plans in the industry sector remained positive although lower at 29.1 percent from 32.5 percent last quarter. Meanwhile, average capacity utilization for the current quarter was broadly steady at 77.2 percent from 76.8 percent a quarter ago.

Firms’ financing requirements could be met due to easy access to credit

Firms that expected tighter financial conditions outnumbered those that said otherwise during the quarter. Nonetheless, firms were of the view that their financing requirements could be met through available credit as respondents who reported easy access to credit exceeded those that said otherwise, even as the number that said so declined compared to that a quarter ago.

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 increase for the current and next quarters compared to those who said otherwise. However, 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 3.2 percent for Q2 2015 and 3.4 percent for Q3 2015 compared to 3.9 percent in the previous quarter’s survey results. Meanwhile, more respondents expected the peso to appreciate and interest rates to increase for Q2 and Q3 2015.

About the Survey

The Q2 2015 BES was conducted during the period 1 April - 13 May 2015. There were 1,522 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 916 firms in AONCR, covering all 17 regions nationwide.  The survey response rate for this quarter was slightly lower at 84.2 percent (from 84.4 percent in the previous quarter). The response rate was higher for NCR at 81.8 percent (from 80.2 percent in the previous quarter) and lower for AONCR at 85.8 percent (from 87.1 percent for Q1 2015).

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