Business sector confidence hits two-year high

MANILA, Philippines – Businessmen are more optimistic that the domestic economy would recover from the worldwide economic slump this year on the back of moderate inflation, a steady stream of remittances from Filipinos abroad, election-related spending, and continued foreign investment inflows.

In a press conference, BSP Assistant Governor Cyd Tuano-Amador said business sentiment turned more optimistic after the central bank’s Business Expectations Survey (BES) for the first quarter of 2010 showed that the business confidence index rose sharply to a two-year high of 39.1 percent for the first quarter of the year from 22 percent in the fourth quarter of last year.

Amador said the business confidence index was the highest since the fourth quarter of 2007 when it reached 48 percent and has continued to increase for the third straight quarter after a negative growth of 23.9 percent in the first quarter of last year.

“Emerging from the challenging economic conditions in 2009, businesses expect economic activity to continue to pick up in the current and succeeding quarters amid clearer signs of global economic rebound,” Amador said.

She pointed out that the business confidence index for the next quarter hit 52.6 percent or the second highest after 53 percent in the third quarter of 2007.

She attributed the sharp improvement of business sentiment to moderate inflation, the steady stream of remittances from overseas Filipino workers (OFWs), election-related spending, and continued foreign investment inflows.

“Moderate inflation, the steady stream of overseas Filipinos remittances, and election-related spending are some factors that buoyed respondents’ expectations of higher spending that will spur business activity. Furthermore, firms expected that continued foreign investment inflows will help provide funds for economic expansion,” Amador added.

According to Amador, the results of the survey validates a more solid economic growth this year and mirrors the improving business confidence in other countries including Hong Kong, Singapore, Australia, Europe, and the US.

“This validates how the economy will shape up in the near term,” Amador explained.

For her part, BSP director for Department of Economic Statistics Rosabel Guerrero told reporters that business morale in both the National Capital Region with 42.4 percent and areas outside NCR with 33.8 percent for the first quarter as well as 57.2 percent for NCR and 44.6 percent for areas outside NCR for the next quarter.

Guerrero said business sentiment accross sectors continued to improve in the first quarter of the year with the construction sector exhibiting heightened optimism with 48 percent followed by the services sector with 45.5 percent and the wholesale and retail trade sector with 34.4 percent.

She explained that the construction sector would benefit from government infrastructure project and big construction activities in the real estate market while the services sector particularly the financial intermediation would benefit from the availability of ample liquidity even during the global financial sector.

She added that monetary easing measures that started in December of 2008 would continue to help improve credit access and financial conditions due to improved liquidity providing sufficient credit to business for their operations.

According to Guerrero, the employment outlook index soared to a record high of 22 percent in the first quarter of this year from 8.7 percent in the fourth quarter of last year with improvements in the construction and services sectors that are expected to gear up for heightened demand during the summer season and the May 10 elections.

“Another indicator supporting expectations of an economic recovery is the employment outlook index for the next quarter which reached an all-time high of 22 percent,” she told reporters.

This despite the fact, that fewer companies expressed plans to pursue expansion projects. Fewer firms or 19 percent of respondents said they plan to expand their operations in the country in the first quarter from 23.7 percent in the last quarter of last year.

Respondents also expected inflation and interest rates to go up and the peso to appreciate in the first and second quarters of 2010 due to El NIno weather conditions as well as the impending power rate adjustments.

The Cabinet-level Development Budget Coordination Committee (DBCC) sees the country’s gross domestic product (GDP) growth between 2.6 percent and 3.6 percent this year from 0.9 percent last year while the BSP expects inflation kicking up to a range of 3.5 percent to 5.5 percent from 3.2 percent. –Lawrence Agcaoili (The Philippine Star)