Positive business outlook on the Philippine economy improved for Q4 2019, as the overall confidence index (CI) based on the Q4 2019 BES increased to 40.2 percent from 37.3 percent in Q3 2019. This was reflective of the higher increase in the percentage of optimists, which outweighed the increase in the percentage of pessimists from the previous quarter’s survey results.

Respondents attributed their more optimistic sentiment for the quarter to: (a) higher consumer demand during the holiday and harvest seasons, (b) increase in sales, orders, and projects, (c) more favorable macroeconomic conditions (i.e., higher GDP growth and lower inflation and unemployment rates), (d) higher government spending, mainly in infrastructure, and (e) business expansion. Firms also cited the anticipated positive impact of the country’s hosting of the 2019 Southeast Asian (SEA) Games, (i.e., availability of more jobs and increase in consumer spending).

The sentiment of businesses in the Philippines mirrored the more buoyant business outlook in Brazil, Chile, Hungary, and the Netherlands. Meanwhile, business sentiments in Bulgaria, Croatia, Greece, Israel, Norway, and Ukraine were less optimistic. Canada, China, Denmark, Euro Area, Hong Kong, New Zealand, Singapore, South Korea, Thailand, United Kingdom, and the United States remained pessimistic.

For Q1 2020, positive business outlook weakened as the next quarter CI declined to 40.3 percent from the Q3 2019 survey result of 56.1 percent in Q4 2019. Respondents’ less favorable outlook for Q1 2020 was due mainly to expectations of: (a) lower consumer demand after the holiday and harvest seasons, (b) decline in sales and orders, (c) stiffer competition, and (d) other factors (i.e., rising prices, concerns over the African Swine Flu (ASF) epidemic, and fishing ban period).

Business outlook on the country’s economy was more positive for the next 12 months,1 as the CI inched up to 59.6 percent from 58.6 percent in the previous quarter. The more optimistic outlook of the respondents for the next 12 months was attributed to expectations of: (a) sound macrofundamentals (i.e., more stable economic growth and lower inflation and interest rates), (b) increase in consumer demand, (c) higher government spending on infrastructure, (d) development of new product lines/models and marketing and business strategies, (e) business expansion, and (f) incoming new projects, clients and prospective customers.

The more optimistic outlook of importers and domestic-oriented firms drives the improved business sentiment

Across different types of trading firms (i.e., exporter, importer, dual-activity and domestic-oriented), business sentiment was mixed for Q4 2019. Views of importers and domestic-oriented firms were more buoyant as they anticipated increase in sales and higher demand on pharmaceutical products, and food and beverages during the holiday and harvest seasons. Meanwhile, exporters and dual-activity firms were less optimistic for Q4 2019 as they expected lower demand in electronics and delay in shipment due to port congestion.

For Q1 2020, the outlook of importers, exporters and domestic-oriented firms was less buoyant on expectations of seasonal slack in demand after the holiday season. However, dual-activity firms’ outlook was more positive due to the anticipation of business expansion and potential customers.

For the next 12 months, outlook of dual-activity firms was more optimistic as they expected increase in demand for manufactured products, particularly activated carbon, jewelry, rubber beltings, and automotive parts, more favorable macroeconomic conditions, and new clients and projects. However, importers, exporters, and domestic-oriented firms cited stiffer competition and concerns on the impact of potential tax reform and global concerns as reasons for their less upbeat outlook.

The more upbeat business sentiment of the wholesale and retail trade and services sectors sways the overall business outlook to be more buoyant for Q4 2019

For Q4 2019, business sentiment was more optimistic in the wholesale and retail trade and services sectors, while less upbeat in the industry and construction sectors.

Services firms’ outlook was the most bullish across sectors for Q4 2019, mainly driven by the improved sentiment of the hotels and restaurants, transportation, and real estate sub-sectors. Respondents attributed their more optimistic outlook to the expectations of: (a) increase in consumer demand, higher cash flows due to receipt of bonuses, and high influx of OFW remittances during the holiday season, and (b) sound macroeconomic fundamentals, particularly lower inflation and interest rates. The more positive outlook of wholesale and retail trade sector for the current quarter was due to the anticipation of higher consumer demand during the holiday season, favorable macroeconomic conditions (i.e., higher GDP and low inflation and interest rates), and business expansion. Industry firms’ outlook was less buoyant for Q4 2019, as the CIs of firms from mining and quarrying, manufacturing and agriculture sub-sectors turned less positive. Respondents attributed their less optimistic outlook to the business operations constraints and concerns over the impact of the ASF epidemic in the country and the government’s plan to liberalize sugar importation. Outlook of construction firms for the current quarter was less buoyant due to expectations of unfavorable weather conditions.

Firms are more optimistic about their business operations for Q4 2019

The outlook of firms about their own business operations improved for Q4 2019 compared to their sentiment in Q3 2019. The sentiment of firms on the volume of business activity and volume of total orders booked was more upbeat across sectors, except for the industry sector, which was less buoyant. For Q1 2020, the outlook on volume of business activity was less upbeat across sectors, except for the construction sector, which was more upbeat. The respondent firms’ outlook on volume of business activity for the next 12 months was broadly steady. The sentiment of the industry and construction firms on the volume of business activity was steady while firms from the trade and services sectors were more optimistic.

Employment outlook remains positive

The employment outlook index for Q1 2020 and the next 12 months remained positive although lower at 16.6 percent and 34.5 percent, respectively, compared to the Q3 2019 survey results for Q4 2019 and the next 12 months at 19.6 percent and 35.8 percent, respectively. This suggests that more firms will continue to hire new employees, although the number that said so are lower compared to the Q3 2019 survey results. The decline in the employment outlook index for both periods stemmed from the moderation of employment prospects in the industry and wholesale and retail trade sectors.

Expansion plans and capacity utilization are lower

The percentage of businesses with expansion plans in the industry sector for Q1 2020 was lower at 29.2 percent from the Q3 2019 survey results at 30.4 percent but higher for the next 12 months at

38.1 percent from the Q3 2019 survey results at 37.9 percent. The average capacity utilization (in the industry and construction sectors) for Q4 2019 was lower at 75.1 percent from 76.1 percent in Q3 2019.

Firms expect easy access to credit but tighter financial conditions

Sentiment on financial conditions of responding firms improved, but the CI remained to be in negative territory at -5.4 percent for Q4 2019, compared to -7 percent in Q3 2019. This means that firms that expected tight financial conditions outnumbered those that said otherwise during the quarter, but the number that said so declined compared to Q3 2019. However, firms were of the view that their financing requirements could be met through available credit as more respondents reported ease of access to credit.

Firms expect a stronger peso and lower interest rate but higher inflation rate for Q4 2019

The survey results showed that businesses expect the peso to appreciate, interest rate to decline, but inflation rate to increase for Q4 2019. Meanwhile, respondents anticipated the peso to depreciate and inflation and interest rates to rise for Q1 2020 and the next 12 months. Businesses expected that the rate of increase in commodity prices will remain within the government’s 2 to 4 percent inflation target range for 2019 and 2020. In particular, respondents predicted inflation to be at 2.9 percent for Q4 2019, 3 percent for Q1 2020, and 3.2 percent for the next 12 months (from 3.4 percent, 3.5 percent and 3.6 percent, respectively, in the Q3 2019 survey results). Moreover, businesses anticipated that the peso will average at Php 51.5 for Q4 2019, Php 51.7 for Q1 2020 and Php 51.8 for the next 12 months.

About the Survey

The Q4 2019 BES was conducted during the period 3 October � 25 November 2019. There were 1,477 firms surveyed nationwide. Respondents were drawn from the combined list of the Securities and Exchange Commission’s (SEC) Top 7,000 Corporations in 2010 and Business World’s Top 1,000 Corporations in 2017, consisting of 580 companies in NCR and 897 firms in AONCR, covering all 16 regions nationwide. The survey response rate for this quarter was slightly lower at 81.6 percent (from 81.7 percent in the previous quarter). The response rates were lower for NCR at 80.2 percent (from 80.4 percent in the previous quarter) but was unchanged for AONCR at 82.5 percent.

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1 Starting Q4 2019, the outlook for the next 12 months was reported.

Source: Bangko Sentral ng Pilipinas (BSP)