Business sentiment less optimistic in Q3 and beyond — BSP

Filipino entrepreneurs’ business sentiment turned more optimistic in the second quarter this year but notably less confident for the third quarter and in the next 12 months with a weak peso and high inflation, according to a Bangko Sentral ng Pilipinas (BSP) quarterly survey.

The latest Business Expectations Survey (BES) results showed an overall confidence index (CI) of 35.4 percent which was better than 32.9 percent in the end-March survey due to the increase in the number of optimists versus pessimists.

BSP Senior Director, Redentor Paolo Alegre Jr. of the Department of Economic Statistics, said much of the positivity in business outlook was due to more mobility as economic sectors are gradually reopened and normal business operations return.

Business sentiment also improved in the first quarter with increase in sales, orders and demand such as enrollment, loans, leasing, and utilities, as well as election-related spending.

For the second quarter or April to June however, BES showed a CI declining to 46.4 percent compared to 59.7 percent in the previous quarter.

It is the same for the next 12 months since the business sentiment was also less optimistic as the overall CI decreased to 59.9 percent from the previous quarter’s 69.8 percent.

Alegre said surveyed firms still expect a weak peso, and higher borrowing and inflation rates in the second quarter as shown in the market, and in the near term.

The peso lost ground three times in June, it depreciated further to the P53, P54 and P55 levels in a span of three weeks. Inflation as of May was at 5.4 percent and the forecast for June is 5.7 percent to 6.5 percent, way above the two-four percent target for this year and in 2023.

The report said businesses expect that the peso “may depreciate against the US dollar (until) Q3 (third quarter) and the next 12 months. Firms also expect that the peso borrowing and inflation rates may rise during the same periods.” However, surveyed firms only thought the peso will depreciate to P52.2 versus the US dollar.

Alegre said businesses expect the inflation rate to settle at four percent in the second quarter and 4.1 percent in the third quarter and the next 12 months. In contrast, the BSP forecasts average inflation to close at five percent by end-2022.

Meanwhile the survey said trading firms are generally more upbeat in the second quarter but less positive in the near term. By sector, sentiment is mostly mixed in the second quarter by less bullish for the next quarter and the next 12 months

“The outlook by sector was mixed in Q2 2022 as the CIs of firms in the industry, construction, and services sectors declined, while the CI of firms in the wholesale and retail trade sector increased,” noted the BSP.

Generally, firms’ outlook on their business operations is more optimistic in the second quarter which is consistent with the national trend, said the BSP. The sentiments are based on entrepreneurs’ own views on the volume of business activity and total orders booked.

As for capacity utilization, this improved in the second quarter, particularly for the industry and construction sectors.

Surveyed firms also expect their financial condition and access to credit to improve in the second quarter or at least “less tight”. This will lead to more hiring of people despite that fewer firms have plans to expand their business operations.

The BSP said the employment outlook index was steady at 25.4 percent for the third quarter and even increased to 30.7 percent for the next 12 months. “The higher positive readings for Q3 2022 and the next 12 months suggest that firms are looking forward to hiring more people in the next quarter and the next several months,” said the BSP.

Meanwhile, the percentage of businesses with expansion plans for the third quarter dropped to 17.9 percent while the percentage of industry firms with expansion plans for the next 12 months also declined to 24.4 percent, based on the BES.

The BES, conducted April 18 until June 1, covered 1,509 firms, of which 585 companies are located in the National Capital Region (NCR) and 924 firms in areas outside NCR.

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