Businesses more optimistic in Q3 – BSP survey

MANILA, Philippines – Businesses turned more optimistic in the third quarter of the year after two straight quarters of decline in the business optimism index under the Aquino administration.

The higher business optimism is based on expectations that the domestic economy will remain resilient despite the recent US credit rating downgrade and the ongoing debt concerns in Europe.

After falling to 47.5 percent in the first quarter and 31.8 percent in the second quarter from a record high of 50.6 percent, the Business Expectation Survey of the Bangko Sentral ng Pilipinas showed that the business confidence index improved to 34.1 percent in the current quarter and 53.9 percent in the next quarter.

The confidence index is the percentage of firms that answered in the affirmative less the percentage of firms that answered in the negative to questions regarding their views on a given indicator. A positive confidence index indicates a favorable view.

BSP assistant governor Ma. Cyd Tuano-Amador said the survey was undertaken from July 1 to Aug. 17 or prior to the news of the decision of Standard and Poor’s to downgrade the triple A credit rating of the US to AA early this month and the reports of possible spillovers of the sovereign debt crisis in Europe.

She added that the results of the survey suggest that the challenges posed by the recent US credit rating downgrade and by sovereign debt crisis issues in some parts of Europe could be countered by stronger domestic demand, higher fiscal spending, and continued growth in the private sector.

“The key take away here is that it shows that the underlying optimism or resilience of domestic economy should likely provide some offset or some counter force against the very challenging global economy we are facing,” she stressed.

Teresita Deveza, acting deputy director of the BSP’s Department of Economic Statistics, attributed the more buoyant outlook of businessmen to expectations of more robust demand, the implementation of government projects including the public private partnership (PPP) scheme, and the sound macroeconomic fundamentals.

Deveza also cited business expansion arising from steady investment inflows, the recovery of markets in Japan after the earthquake and tsunami last March 11, the introduction of new and enhanced business strategies as well as the strong confidence of businessmen in the administration of President Aquino.

“The higher confidence index in the third quarter indicates that more businesses are optimistic about the country’s economic prospects and their own operations than in the previous quarter,” Deveza stressed.

She pointed out that the business outlook index of the wholesale and retail trade as well as services sectors improved in the current quarter while that of the industry and construction sectors fell.

She said the more favorable outlook of the services sector was largely driven by brighter prospects in the financial intermediation, community and social services as well as hotels and restaurant sub-sectors, while more robust domestic demand, lower importation costs due to the strong peso and enhancement of firms’ administrative and marketing strategies boosted the wholesale and retail trade sector.

She said the business outlook index for the four sectors is expected to improve in the next quarter to result in an increase in the overall confidence index to 53.9 percent in the third quarter from only 33 percent in the second quarter.

“This suggests that the growth momentum could accelerate in the last quarter of 2011,” Deveza added.

She traced the improvement to the general expectations of continued expansion of the economy on the back of stronger domestic demand fueled partly by the steady stream of remittances from overseas Filipino workers (OFWs) as well as more brisk business during the Christmas and harvest seasons.

The index of the firms in the wholesale and retail industry plunged to 23.9 percent from 44.6 percent due to higher oil and commodity prices as well as lack of raw materials for production, and the decline in orders from their markets in Japan. The third quarter Business Expectation Survey covered 1,619 firms nationwide. –Lawrence Agcaoili (The Philippine Star)