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Business Confidence Less Buoyant for Q3 2015, More Upbeat for Q4 2015

08.27.2015

Business confidence declines in Q3 2015 but turns more upbeat for Q4 2015

Business outlook on the economy turned less optimistic for Q3 2015, with the overall confidence index (CI) declining to 41.4 percent compared to 49.2 percent in the Q2 2015 survey. This indicates that the number of optimists declined but continued to be greater than the number of pessimists during the quarter. The confidence index is computed as the percentage of firms that answered in the affirmative less the percentage of firms that answered in the negative with respect to their views on a given indicator.

According to respondents, their less upbeat quarter-on-quarter outlook was due to the following: (a) expected slack in demand during the rainy season, (b) lower crop production as a result of the El Niño, (c) closed fishing season in Davao Gulf from July to September, and (d) lower consumer spending in view of increased expenditures on education. The sentiment of businesses in the Philippines mirrored the less buoyant business outlook in the US, but was in contrast to the more bullish views of those in the UK, Germany, Korea, Singapore, Hong Kong, and India.

For the quarter ahead (Q4 2015), business outlook turned more upbeat as the next quarter index rose to 53.1 percent from 47.3 percent in the previous quarter’s survey. This reading suggests sustained economic growth in the last quarter of 2015. Respondents’ more positive outlook for Q4 2015 was on account of: (a) the expected uptick in consumer demand during the holiday, harvest and milling seasons, (b) increase in sales and orders translating to higher volume of production, (c) business expansion in retail trade, manufacturing, finance and business process outsourcing (BPO) services, (d) new and improved procedures/methods that increase production in agriculture (e.g., poultry, tuna fishing), (e) opening of high seas/fishing operations in October, (f) steady flow of overseas Filipinos’ (OFs) remittances, especially during the holiday season, and (g) election-related spending for the 2016 national elections. Respondents also cited that the prevailing favorable macroeconomic conditions (i.e., low inflation partly as a result of declining oil prices and lower peso) boosted their business confidence for the next quarter.

Sentiment less positive across different types of businesses but improves for Q4 2015

Across different types of businesses, the sentiment was also less positive. In particular, exporters posted the biggest drop in the confidence index both for the current and next quarters (hitting a record-low in six years).  Importers and domestic-oriented firms’ outlook for Q3 2015 were also less upbeat but turned more bullish for the next quarter.

Business confidence declines in industry but improves in the services and wholesale and retail trade sectors

Business sentiment across sectors was less upbeat for Q3 2015. Firms in the industry sector recorded the lowest level of business confidence, particularly those in mining and quarrying and agriculture, fishery and forestry. For the next quarter (Q4 2015), however, outlook improved for the services and wholesale and retail trade sectors, remained steady for construction, and was less bullish for industry, especially the mining and quarrying and manufacturing firms.

Industry firms were less optimistic for Q3 2015 largely due to the usual slack in production activities during the rainy season, annual overhauling of machineries, decrease in demand for electricity, closure of high seas in the international waters for fishing activities in the current quarter, and lower crop production as a result of the El Niño. For Q4 2015, the outlook of businesses in the industry sector remained less sanguine as the less optimistic views in the mining and quarrying and manufacturing sub-sectors outweighed the positive views in the electricity, gas and water supply and agriculture, fishery and forestry sub-sectors. 
 
The outlook of the services sector remained favorable although less upbeat for the current quarter, generally on account of the seasonal sluggish demand during the rainy season. The less optimistic sentiment emanated from the outlook of the financial intermediation, real estate and transportation sub-sectors. For Q4 2015, the improved outlook of the services sector was driven by the heightened optimism across sub-sectors (except in business activities). This is in view of expectations of increase in consumer spending, improvement of facilities and infrastructure, and implementation of new systems and strategies. Likewise, businesses in the trade sector were more optimistic in view of the expected increase in consumer demand during Christmas, main harvest and milling seasons.

Construction firms’ outlook for the current quarter was less sanguine due largely to the slowdown of construction activities during the rainy season. Nonetheless, the construction sector registered the highest CI among sectors. Firms expected that demand for construction services would be sustained in the last quarter of the year as the confidence index remained steady.

Firms’ outlook about their own business operations weakens for Q3 but strengthens for Q4 2015

With the less favorable business outlook on the macroeconomy, the sentiment of firms about their own business operations declined slightly for Q3 2015 due largely to the decline in the outlook of industry, particularly electricity, gas and water supply and agriculture, fishery and forestry sub-sectors. However, the outlook on businesses operations of firms in the construction, services and wholesale and retail trade sectors turned more bullish. For the quarter ahead (Q4 2015), business sentiment was more upbeat. This optimism largely emanated from the wholesale and retail trade and services sectors.

Employment outlook improves

The employment outlook index for the quarter increased to 22.3 percent from 20.7 percent last quarter. This indicates expectations of an overall increase in the number of new employees to be hired for the fourth quarter of the year. 

The number of firms with expansion plans increases while capacity utilization declines

The percentage of industrial firms with expansion plans increased to 32.9 percent from 29.1 percent last quarter. Meanwhile, average capacity utilization for the current quarter was lower at 76.2 percent from 77.2 percent a quarter ago.

Firms expect better financial conditions and access to credit

Firms that expected better financial conditions outnumbered those that said otherwise during the quarter. Firms were also 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. Notably, the number that said so also increased 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 compared to those who said otherwise for the current and next quarters. 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 2.7 percent for Q3 2015 and 2.9 percent for Q4 2015 (compared to 3.2 percent and 3.4 percent in the previous quarter’s survey results, respectively). Meanwhile, more respondents expected the peso to appreciate than those who said otherwise for Q3 and Q4 2015.

About the Survey

The Q3 2015 BES was conducted during the period 1 July - 17 August 2015. There were 1,516 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 910 firms in AONCR, covering all 17 regions nationwide.  The survey response rate for this quarter was lower at 81.9 percent (from 84.2 percent in the previous quarter). The response rates were lower both for NCR at 80.4 percent (from 81.8 percent in the previous quarter) and for AONCR at 83 percent (from 85.8 percent for Q2 2015).

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