Business optimism up in Q4 - BSP survey

MANILA, Philippines - Businessmen turned more optimistic for the second straight quarter on the back of the country’s sound macroeconomic fundamentals, robust remittances from Filipinos abroad, strong investment inflows as well as higher consumer spending with the onset of the Christmas season in the fourth quarter.

Teresita Deveza, acting deputy director of the Bangko Sentral ng Pilipinas (BSP)’s Department of Economic Statistics, said the central bank’s Business Expectation Survey (BES) for the fourth quarter of 2011 showed that the business confidence index improved to 38.7 percent in the fourth quarter of the year from 34.1 percent in the third quarter.

“This quarter-on-quarter uptick in the confidence index in the fourth quarter indicates that more businesses are optimistic about the country’s economic prospects compared to the previous quarter,” Deveza said.

After dropping steadily for two consecutive quarters to 31.8 percent in the second quarter from 47.5 percent in the first quarter and the record level of 50.6 percent in the fourth quarter of last year, the confidence index improved for two straight quarters to 34.1 percent in the third quarter and to 38.7 percent in the fourth 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. A positive confidence index indicates a favorable view.

Deveza pointed out that the more optimistic outlook in the fourth quarter could be traced to the seasonal increase in consumer demand during the Christmas and harvest season, the steady stream of remittances from overseas Filipino workers (OFWs), and the country’s sound macroeconomic fundamentals.

She also cited the implementation of government projects under the public private partnership (PPP) scheme, business expansion arising from steady investment inflows as well as the introduction of new and enhanced business strategies.

She added that the business sentiment in the Philippines fared better compared to those of other developed economies including the US, Germany, Singapore, Hong Kong, and New Zealand whose outlook were dampened by the sluggishness in the US economy and the sovereign debt crisis in Europe.

Deveza said the buoyant business outlook in the fourth quarter was broad-based, as business sentiment improved across all sectors led by the construction industry as well as wholesale and retail sectors.

The survey showed that the construction sector remained the most bullish, reflecting the continued implementation of the government’s infrastructure projects under the PPP program, while the wholesale and retail trade drew more favorable sentiment from increased trust in government aside from expectations of a more robust demand for the Christmas season.

On the other hand, the confidence index in the services sector that covered financial intermediation, hotels and restaurants, business activities, as well as the community and social services retreated in the fourth quarter compared to the third quarter due to concerns over the uncertainty in the global financial markets as well as higher fuel and electricity costs.

For the first quarter of 2012, Deveza said the business confidence index retreated to 36.1 percent due in part to the weak global economy, tensions in the Middle East and North African states and also the residual effects of the natural disasters in Japan and Thailand.

She also cited the damage to crops and businesses resulting in higher prices of basic commodities brought about by typhoons and other weather disturbances.

BSP Deputy Governor Diwa Guinigundo said business sentiment for the first quarter of next year was affected by the heightened risk aversion brought about by the economic uncertainty in the US as well as the sovereign debt crisis in Europe.

Guinigundo said recent concerns on how the US would reduce its $1.2-trillion budget deficit within 10 years as well as the leadership and debt crisis in Europe continue to hound financial markets.

The growth of the country’s domestic output as measured by the gross domestic product (GDP) slackened to four percent in the first half of the year from 8.7 percent in the same period last year due to weak global trade and heavy underspending by the national government.

This prompted the Cabinet-level Development Budget Coordination Committee (DBCC) to lower the GDP growth target to 4.5 percent to 5.5 percent from the revised target of five percent to six percent. Originally, the DBCC set a GDP growth target of between seven percent and eight percent this year.

The fourth quarter 2011 Business Expectation Survey conducted from Oct. 3 to Nov. 11 covered 1,617 firms nationwide. Respondents of the survey also see the peso appreciating further against the US dollar and higher inflation and interest rates in the current and next quarters.