Business confidence up at 35.2% in Q1 2019

 

By Rose de la Cruz

 

Businessmen are more confident in the first quarter of 2019, with the confidence index rising to 35.2 percent from 27.2 percent in the fourth quarter of 2018 indicating that there are more optimists than pessimists in the period mentioned. 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. The survey sampled 1,496 firms from January 22 to March 19, 2019.

 
Respondents were more upbeat in their expectations because of:

 

(a)    more business activities during the start of the campaign period for the forthcoming midterm elections.

(b)    increased orders and consumer purchases with the easing of inflation.

(c)     higher government infrastructure spending with the “Build, Build, Build” strategy of the current administration.

(d)    introduction of new and enhanced business strategies and processes.

(e)    expansion of businesses and new product lines.

 

They were also optimistic that their business operations would benefit from the favorable macroeconomic conditions in the country, particularly lower inflation and interest rates. The sentiment of businesses in the Philippines mirrored the more positive business outlook in Chile, Greece, Israel, Mexico, The Netherlands, and South Korea. However, business sentiments in Australia, Brazil, China, Hong Kong, Singapore, Thailand, UK and US were less buoyant.

 
Respondents turned more bullish for the quarter ahead (Q2 2019) as the CI rose to 52 percent from 29.4 percent in the previous quarter. This next quarter reading is the highest since Q4 2016. Business optimism was heightened on the back of broadly the same factors that were behind the buoyant sentiment for Q1 2019.

 

In particular, respondents cited the following reasons behind their more bullish outlook: (a) usual increase in demand during summer (in view of the foreseen increase in the number of local and foreign tourists), enrollment and harvest periods, (b) election-related spending in the run-up to the elections  in May 2019, (c) sustained increase in orders and projects leading to higher volume of production and (d) more construction activities (public and private) during the dry season. 

 

Traders more upbeat

 

The outlook of businesses involved in international commodity trading turned more buoyant for Q1 and Q2 2019.

 

Among business types, importers were the most bullish for the current quarter on account of improved availability of raw materials (e.g., corrugated fiberboards), introduction of new models (e.g., automobiles), and higher demand for construction materials and equipment (e.g., electrical transmission, lubricant products, glass, steel, earth-moving machines, etc.). Likewise, exporters were more optimistic as they expected increase in orders from abroad and expansion of new product lines.

 

Meanwhile, domestic-oriented firms view that economic growth would be driven by robust consumer demand (arising from seasonal factors during summer and decline in consumer prices), and better prices of commodity prices (e.g., sugar). The outlook of dual-activity (both importer and exporter) firms was also more favorable as firms benefited from expectations of increasing volume of sales/orders (from domestic and external markets) and brighter prospects in the economy. 

 

Across sectors


The construction sector was the most bullish for Q1 2019. This was due mainly to continued construction projects (both public and private) at the onset of 2019. Likewise, sentiment of firms in the services sector CI was more upbeat. Among the services sub-sectors, community and social services posted the highest CI, with the optimism emanating largely from medical institutions as respondents noted higher bed occupancy rates in hospitals, enrollment in medical courses, and business expansion. Industry firms’ outlook turned broadly more buoyant across sub-sectors. This excludes agriculture, fishery and forestry, whose outlook turned less buoyant on account of lower production during the lean season.

 

Mining and quarrying registered the most improved index, with the upsurge in demand for construction materials (e.g., aggregates, asphalt, concrete, paving materials, etc.) due to various infrastructure projects in the pipeline. Meanwhile, the steady outlook of the trade sector stemmed from firms’ expectations that the more favorable business conditions were tempered by the typical slack in demand and lack of sales promotions after the Christmas season, stiffer competition (with the expansion of shopping malls and supermarket chains), and higher fuel costs due to the implementation of the second tranche of the TRAIN Law. 

 

Construction

Looking at the outlook of firms on their business operations, only the construction sector improved for Q1 2019. For the next quarter (Q2 2019), however, expectations of higher volume of business activity were recorded across sectors. 

 

Employment outlook


The employment outlook index for the next quarter increased to 29.7 percent from 21.8 percent in the last quarter’s survey. This indicates that the number of firms with hiring intentions increased relative to a quarter ago. 

 

Expansion down, capacity use up


The percentage of businesses with expansion plans in the industry sector for Q2 2019 declined to 33.2 percent from 36 percent in the previous quarter. However, the average capacity utilization (in the industry and construction sectors) for Q1 2019 was higher at 76.5 percent (from 76 percent for Q4 2018). 

Financial conditions to remain tight


The financial conditions index improved but remained in the negative territory at -7.5 percent for Q1 2019, compared to -10.6 percent in the previous quarter. This means that firms that expected tighter financial 
conditions outnumbered those that said otherwise during the quarter, but the number that said so declined compared to a quarter ago. Firms were of the view that their financing requirements could be met through available credit as more respondents reported ease of access to credit. 

Inflation

The survey results showed that businesses anticipated inflation to decrease, the peso to appreciate, and interest rates to rise for the current and next quarters. However, businesses expected that the rate of increase in commodity prices will remain above the government’s 2 to 4 percent inflation target range for 2019, at 5 percent for Q1 2019 and 4.9 percent for Q2 2019 (from 6.1 percent and 6 percent, respectively, in the previous quarter’s survey results). Moreover, businesses anticipated that the peso will average at P 52.7 for Q1 2019 and P 52.8 for Q2 2019.

 

 

Expectations of higher interest rates, the percentage of respondents that said so decreased for the current and next quarters compared to those in the previous quarter’s survey. 

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