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Business Confidence More Bullish for Q2 2016


Business outlook is more bullish

Business outlook on the economy was more bullish for Q2 2016, with the overall confidence index (CI) rising to  48.7 percent from 41.9 percent for Q1 2016. 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. 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.

Respondents were more upbeat due to the following: (a) election-related spending in the  run-up to the    9 May 2016 national elections, (b) sustained increase in orders and projects leading to higher volume of production,  (c) anticipated increase in demand during summer (with the expected influx of both local and foreign tourists) and enrollment periods, (d) introduction of new and enhanced business strategies and processes, (e) expansion of businesses and new product lines, and (f) improving conditions in the local economy as well as in some advanced economies, particularly in Asia. Their more positive outlook was further driven by expectations of more favorable macroeconomic conditions in the country (particularly, low inflation and stable interest rates), and sustained foreign investment inflows. The sentiment of businesses in the Philippines mirrored the improving business outlook in South Korea, Canada, France, and Netherlands but was in contrast to the deteriorating views of those in the US, UK, Germany, China and Australia.

For the quarter ahead (Q3 2016), business optimism remained high although the outcome was lower compared to the previous quarter’s results, with the CI declining to 45.3 percent from 49.6 percent. Respondents cited the following factors as reasons behind their less sanguine outlook: (a) interruption of business activities during the rainy season, (b) lower consumer demand as households prioritize enrollment expenses, and (c) expectations of higher oil prices.

Outlook of trading firms turns generally more favorable

The outlook of businesses involved in international commodity trading turned broadly more favorable for Q2 2016. Among business types, importers and domestic-oriented firms were the most optimistic. The outlook of exporters improved while that of dual-activity firms was broadly steady.

Business confidence across sectors is broadly optimistic

Business sentiment was generally upbeat across sectors for Q2 2016. But construction, while remaining positive, turned less favorable. For the next quarter (Q3 2016), the outlook across sectors was less buoyant due to the expected slack in demand during the rainy season.

The services sector was the most optimistic among all sectors for Q2 2016 due to the usual uptick in demand during summer and harvest seasons, expected brighter prospects with the increase in demand due to election-related spending and given the positive impact of the elections on the economy, low oil prices, improved marketing strategies, and new investment opportunities.

The outlook of firms in the wholesale and retail trade sector was more upbeat for Q2 2016. Respondents attributed their optimism for the current quarter to expectations of generally more robust demand during summer and enrollment seasons, a surge in spending over the course of the election campaign period, and a more conscious effort to achieve target sales in the automobile industry.

Industry firms’ outlook was bullish for the current quarter, particularly in the mining and quarrying and manufacturing sub-sectors. Respondents’ more optimistic views were driven by expectations of higher election-related production activities (such as printing/manufacturing of campaign materials and giveaways), robust consumer demand during summer, and innovations in product design and quality.

Meanwhile, the outlook of firms in the construction sector was less sanguine for Q2 2016. The lull in construction activities might be due to the wait-and-see attitude of businesses during the transition period to the new administration.
Firms are more upbeat about their own business operations

In line with the more upbeat overall business confidence on the macroeconomy, the outlook of firms about their own business operations was more buoyant for Q2 2016 compared to that a quarter ago. Notably, the outlook of firms on the volume of business activity and total order booked across sectors was more sanguine, except for those in the construction sector, which was less positive.

Employment outlook index and the number of firms with expansion plans decrease
The employment outlook index for the next quarter declined to 23.8 percent from 27.2 percent in the last quarter’s survey. This indicates that more firms will continue to hire new employees than those that said otherwise, although the number of new hires could decrease compared to the previous quarter’s survey. Moreover, the percentage of businesses with expansion plans in the industry sector for Q3 2016 decreased to 30.3 percent from 31.3 percent a quarter ago. These developments are consistent with the lower outlook in the industry sector for the next quarter.

Firms expect better financial conditions and access to credit

The financial conditions index reverted to positive territory at 1.3 percent for Q2 2016 from -0.1 percent in the previous quarter. This means that 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

Respondents continued to expect inflation to rise for the current quarter. Broadly the same number of firms anticipated inflation to increase for the next quarter compared to the previous quarter’s results. Businesses expected the rate of increase in commodity prices to remain low at 1.6 percent for Q2 2016 and 1.7 percent for  Q3 2016. Meanwhile, respondents anticipated that the peso would appreciate and interest rates would be higher for Q2 2016.

Respondents also expected the peso to appreciate for Q2 2016. For Q3 2016, however, the number of businesses that anticipated the peso to appreciate remained steady relative to quarter-ago level. Meanwhile, respondents anticipated that interest rates would be higher for Q2 2016 and Q3 2016. However, interest rate expectations were expected to be tempered as the number of firms that expressed higher interest declined against quarter-ago expectation.

About the Survey

The Q2 2016 BES was conducted during the period 1 April - 17 May 2016. There were 1,482 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 2014, consisting of 587 companies in NCR and 895 firms in AONCR, covering all 17 regions nationwide. The survey response rate for this quarter was higher at 82.9 percent (from 82.6 percent in the previous quarter). The response rate was lower for NCR at  80.2 percent (from 80.3 percent in the previous quarter) and higher for AONCR at 84.7 percent (from 84 percent in Q1 2016).

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