TRAIN dampens business optimism in Q1 – BSP survey

MANILA, Philippines — Businesses turned less optimistic in the first quarter due to the usual slowdown in business activities after the Christmas season as well as the transitory impact of the new tax reform law, according to a survey conducted by the Bangko Sentral ng Pilipinas (BSP).

Rosabel Guerrero, director of the BSP’s Department of Economic Statistics, said that based on the Business Expectation Survey for the first quarter, the overall business confidence index slipped to 39.5 percent from the previous quarter’s 43.3 percent.

The survey was conducted from Jan. 8 to Feb. 22 with 1,469 respondents.

“This indicates that the number of optimists declined, but continued to be greater than the number of pessimists during the quarter,” Guerrero said.

Guerrero said the less upbeat outlook for the first quarter was primarily due to the slowdown in business activity and moderation of consumer demand after the holiday and harvest seasons.

Likewise, she added respondents also cited the transitory impact on consumer prices of the new tax reform law.

However, Guerrero said a significant number of businesses also mentioned the positive impact of the tax reform law.

The lower outlook for the first quarter, Guerrero said, was also due to rising fuel prices largely brought about by higher international prices of crude oil and the increase in excise tax on petroleum product as well as stiffer competition.

According to Guerrero, the decline in business sentiment for the first quarter is attributable largely to the wholesale and retail trade sector with a sharp drop in outlook index to 31 percent from the previous quarter’s 50.1 percent.

On the other hand, the industry sector recorded a more buoyant outlook on account of increasing demand, improvement in production capacity, enhanced marketing strategy as well as the rise in household’s disposable incomes.

Furthermore, the construction industry turned more bullish mainly due to expectations of new construction projects both from the private sector and the government to be awarded this year.

BSP Deputy Governor Diwa Guinigundo said the business confidence index normally declines during the first quarter due to the usual slowdown in economic activity after the Christmas holidays.

“After the holidays in the last quarter of the year, you will have some slack in the first quarter of the following year,” he said explaining 11 of the 17 surveys conducted in the first quarter since 2003 showed slower results.

The outlook of exporters, importers and domestic-oriented firms was less favorable for the first quarter, owing to the typical lower demand at the start of the year and the perceived negative effect of the new tax reform law particularly high fuel cost.

The survey showed 61.3 percent of the respondents expect inflation to rise this year, but stay within the two to four percent target set by the BSP, while 19.6 percent see borrowing costs rising.

For the second quarter, Guerrero said business sentiment improved with the confidence index rising to 47.8 percent from the previous quarter’s 39.7 percent due to the increase in demand during summer, expected increase in infrastructure spending under the Build Build Build program as well as new projects and investment opportunities.