Poll spending, exports boost business confidence

MANILA, Philippines – Businessmen continue to maintain a bullish outlook on the domestic economy due to higher spending brought about by the recently concluded May 10 elections, strong recovery in export earnings, moderate inflation, steady growth of overseas Filipino workers, and stable exchange rate.

Rosabel Guerrero, director of BSP’s Department of Economic Statistics, said in a press conference that overall confidence index was placed at 43.9 percent in the second quarter from the previous quarter’s 39.1 percent.

The BSP based the figure on results of its Business Expectation Survey for the second quarter conducted from April 5 to May 7 covering 1,632 firms nationwide.

The confidence index has risen steadily from 18.4 percent in the third quarter of 2009 to 22 percent in the fourth quarter of 2009.

Prior to this, the confidence index was in the negative territory at -12.9 percent in the third quarter of 2008, -6.8 percent in the fourth quarter of 2008, -23.9 percent in the first quarter of 2009, and -2.6 percent in the second quarter of 2009 at the height of the global financial crisis.

“The current quarter confidence index approximated pre-2008 crisis levels when business optimism reached its peak during the fourth quarter of 2006 to the fourth quarter of 2007,” Guerrero said.

“Business also attributed their bullish outlook to the anticipated higher consumer spending attendant to the May national elections,” she said.

Data showed that the confidence index peaked at 49.4 percent in the fourth quarter of 2006.

The index was placed at 44.9 percent in the first quarter of 2007, 46.4 percent in the second, 40.9 percent in the third, and 48 percent in the fourth quarter.

She pointed out that the favorable business sentiment mirrored the improving business confidence in Hong Kong, Indonesia, Singapore, Germany, Italy, and the US.

Guerrero also said confidence index in the National Capital Region was at 50.1 percent in the second quarter from 42.4 percent in the first quarter.

In areas outside the NCR, the figure was at 46.3 percent in the second quarter from 33.8 percent in the previous quarter.

“All firms, regardless of the size of operations, remained positive in their business outlook in the current and next quarters. Large firms were the most optimistic followed by the medium and small firms,” she added.

She said respondents involved in exporting and international trading were most bullish in their outlook for the second and third quarters due to the gradual but steady recovery in global trade.

The confidence index of exporters and importers for the next quarter is at a new all-time high of 52.4 percent, eclipsing the previous record of 50 percent registered in the second quarter of 2007.

The services sector, meanwhile, also showed heightened optimism with 50.3 percent followed by the construction sector with 46.9 percent, and the wholesale and retail trade with 40.9 percent. They all benefited from higher election-related spending.

“The services sector had the most positive outlook, pulled up largely by the heightened optimism of the financial intermediation sub-sector, which benefited from key reforms that helped ensure steady asset expansion, improving overall asset quality and ample liquidity and solvency of the domestic banking system,” she said.

The BSP official also said the buoyant outlook of the renting and business sectors as well as hotel and restaurants sub-sector also contributed to the improved sentiment of the services sector.

But she said expectations for the next quarter declined to 46.3 percent from the previous quarter’s 52.6 percent.

“Consistent with the usual downtrend in the business cycle during the rainy season, all sectors’ outlook for the third quarter of 2010 declined quarter-on-quarter,” Guerrero said.

The industry and services sectors indicated a more positive outlook, partly explained by the expected increase in the total orders and improved business activity.

Meanwhile, optimism of the other two sectors, although remaining positive, declined quarter-on-quarter.

The expected pile-up of inventory due to sluggish activity in the wholesale and retail trade sector in the previous quarter slightly pulled down the sentiment of wholesalers and retailers.

On the other hand, credit access continued to be favorable in the second quarter as more firms reported a significant increase in their access to credit compared with quarter and year ago levels.

Financial conditions likewise improved but remained tight as the index remained in the negative territory at -5.0 percent.

Consistent with the more positive outlook of the industry sector, more firms indicated expansion plans for the third quarter 2010.

Expansion plans were noted across all sub-sectors, with the mining and quarrying sub-sector recording the highest year-on-year growth.

Respondent firms also expected inflation and interest rates to go up and the peso to appreciate in the second and third quarters of the year.

They also anticipate the peso to appreciate in the second and third quarters due to sustained foreign exchange inflows arising from the improved performance of exports, steady flow of remittances, as well as bigger foreign direct and portfolio investments. –Lawrence Agcaoili (The Philippine Star)