Months after the holiday festivities, business optimism has declined but remains positive for the first quarter of the year, the latest Business Expectations Survey of the Bangko Sentral ng Pilipinas (BSP) showed.
Business optimism on the economy experienced a slowdown, as the confidence index (CI) fell to 41.3% in the first quarter of 2016 from 51.3% during the fourth quarter of last year, BSP reported on February 26.
Businesses surveyed cited several factors for the decrease, including the upcoming May elections, as most businesses are in a wait-and-see attitude.
The issues hounding the global economy are also to blame. Local businesses' outlook were affected by the decline in oil prices and the continuing slowdown of China's economy.
Local businesses' optimism have also been dampened by the adverse effects of El Niño to crop production, and the downward trend of the Philippine stock market.
A bright second quarter
Despite the slump, businesses expect brighter days ahead as their outlook rose to 49.6% from 43.9% during the last quarter of 2015.
Such optimism banks on the expected election-related spending as the May election nears, the anticipated increase in demand during the summer months with the influx of tourists, and the looming enrollment period.
This leads to a sustained increase in orders and projects, and the introduction of new and enhanced business strategies and processes. Businesses also tend to expand during this period, with the percentage of businesses with expansion plans in the industry sector during the second quarter of the year remaining steady at 31.3%.
Although some respondents expect inflation to rise for the current and next quarters, businesses expect it to remain low at 1.9% and 2.1% for the first and second quarters of 2016. More respondents also expect the Philippine peso to appreciate and interest rates to increase for the first and second quarters of the year.
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Mixed outlook across trade groups
While sentiment across trade groups for the first quarter of the year was mixed (importers and domestic firms were less optimistic, while exporters and dual-activity firms were more positive), the overall outlook of firms across different trade groups improved for the second quarter.
The services, retail, and trade sectors remain hopeful that there will be increased consumer demand in the second quarter of the year after experiencing a slump in the previous quarter, brought on by business activities after the Christmas season and tighter competition due to the construction of new malls.
Respondents also credited their optimism for the next quarter to more robust demand during the summer and enrollment seasons, a spike in spending during the course of the campaign period, business expansion, and improvement in their product lines.
Meanwhile, industry firms, particularly in the electricity, gas, and manufacturing sub-sectors, have remained positive for the last two quarters, thanks to the rollback of oil prices globally, which leads to lower production costs and increased manufacturing demand.
However, construction firms remain less positive due to the pending results of bidding for 2016 projects, in part due to the upcoming national elections.
The overall business outlook mirrors that in the United Kingdom, Germany, China, and South Korea, but negates the more buoyant views of those in the United States, Canada, France, the Netherlands, and Russia, BSP noted.
The Business Expectations Survey was conducted between January 5 and February 17, 2016, and included companies from all 18 regions. The respondents were drawn from the combined list of the Securities and Exchange Commission’s Top 7,000 Corporations in 2010 and BusinessWorld’s Top 1000 Corporations in 2014.
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