Brighter economic prospects seen in first half of 2012

Expansion of the domestic economy is expected to rise in the first half of the year, a central bank official said citing results of the first quarter 2012 Business Expectations Survey (BES).

Results of the survey showed that business sentiment improved for the third consecutive quarter after confidence index (CI) further rose to 40.5 percent from 38.7 percent in the fourth quarter of 2011.

BSP Deputy Gov. Diwa Guinigundo explained “there is a very close correlation between the business expectation index of the overall sentiment and economic growth.”

“If the BES is going to be the measure then we can expect that higher economic growth may be expected in the first quarter as well as the second quarter of 2012,” he said at a briefing.

The domestic economy grew by 3.7 percent in 2011, lower than year-ago’s 7.6 percent due mainly to government underspending on infrastructure and drop in fishing index.

The survey was conducted from Jan. 6 to Feb. 14, 2012 and was participated in by 1,587 firms nationwide that were drawn from Securities and Exchange Commission’s (SEC) top 7,000 corporations.

Businessmen attributed their optimism to the increase in orders, new contract and projects, increase in government spending, business expansion due to steady investment inflows, sound macroeconomic fundamentals and political stability, possible further credit upgrades for the domestic economy, and introduction of new and enhanced business strategies and product lines.

Based on the three important economic indicators, the respondents expect the peso-dollar exchange rate and inflation to go up this and the next quarter while interest rate is expected to further decline this quarter but go up in the second quarter.

Guinigundo said that although many respondents still see higher inflation rate, those who expect it to increase has gone down compared to the previous survey.

“That is a good measure of inflation expectations that we can describe to be well-anchored,” he said.

Monetary officials expect inflation this and next year to stay within the 3 to 5 percent target.

On the respondents expectation on the exchange rate, the central bank official said businessmen expects a “more modest” appreciation of the local unit as against its strengthening in the last quarter of 2011.

Relatively, expectations on the interest rate is now in the negative at -2.1 percent from the previous quarter’s 5.7 percent, which Guinigundo said “means that the interest rate based on the (Treasury bill) T-bill rate would show some downward adjustment.”

“This can be attributed to the fact that liquidity continues to be ample in the system and that the market is also taking the cue from monetary policy,” he said.

Guinigundo added that while the respondents are less confident “they remain to be optimistic.” PNA