Expectations of businesses get brighther

Business sentiment in the Philippines improved, apparently buoyed by the so-called green shoots in the US, suggesting recovery from the global financial turmoil, the Bangko Sentral ng Pilinas reported on Thursday.

The central bank also credited global efforts to prop up financial markets and the fiscal stimulus package of the Group of 20 nations.

In its Business Expectation Survey (BES), Bangko Sentral said the overall Confidence Index improved to negative 2.6 percent in the second quarter from negative 23.9 percent in the first quarter.

The index continued to improve to positive territory for the coming third quarter at 13.7 percent for that period or 20.2 index points higher quarter-on-quarter basis. That means respondents expected an economic turnaround to start in the third quarter of 2009.

The index is the percentage of firms that answered in the affirmative about their confidence level minus the percentage of firms that answered in the negative.

“Among the factors include greater optimism. What they see were confidence-boosting measures taken by the US and an upshot of the fiscal stimulus package committed by G20 nations,” central bank Deputy Governor Diwa Guinigundo said at a press briefing.

The G20 is the group of the 20 wealthiest nations in the world.

He added that the announcement by the Philippine government of its Economic Resiliency Plan, the series of policy rate cuts that the central bank has reduced by 150 basis points since December last year, and the decelerating inflation also helped lift business sentiment.

The survey is an advance indicator of macroeconomy and provides a basis for monetary policy decisions, such as whether there is a need to cut rates to spur economic growth.

Official outlook

The Development Budget Coordination Committee expects the country’s gross domestic product (GDP) to grow within the target of 3.1 percent to 4.1 percent this year, as domestic consumption will be driven by continued remittance flows and the recovery of the major economies.

Seasonal factors—including the expected rise in demand during the summer, school opening in June and the new and improved management strategies—also contributed to this development, Guinigundo added.

For the second quarter, the outlook of all types of businesses, from importers, exporters and to those engaged in dual activities, although remaining negative, improved significantly quarter-on-quarter as their indices increased.

“All types of businesses expected more favorable global trade conditions for Q3 2009 as their indices turned positive,” Guinigundo said.

For the third quarter, all sectors anticipated an economic turnaround, as all industries posted positive indices. The construction sector was most optimistic with a Confidence Index of 20.0 percent, mostly likely because it expected to benefit from government infrastructure projects that form part of the 2009 stimulus package. Meanwhile, the wholesale and retail trade sector was the least optimistic with an index of 10.3 percent.

Also, more firms see improvement in their business operations particularly in the services sector and trade and industry sector.

Despite the expected improvement in business operations, the average capacity utilization at 69.2 percent was lower than the corresponding levels quarter-on-quarter and year-on-year.

The credit access index improved in the third quarter by 5.6 index points quarter-on-quarter, after three quarters of decline. The index, although at negative 7.2 percent, showed that fewer firms expect tighter access to credit in the current quarter compared to the previous quarter.

In terms of jobs, the employment outlook turned less negative, although the number of industrial firms with expansion plans still few.

The employment outlook index turned less negative at 6.4 percent in the third quarter compared with the previous quarter largely because of the increase in the employment indices of the trade and industry sectors.

But given the current excess capacity in the industry sector, only 16 percent of respondents from 17.8 percent in the last quarter survey expressed expansion plans for the third quarter.

Fewer firms, meanwhile, expect peso to weaken, inflation would go up, and interest rates would increase in the second quarter and second quarter.

The survey polled 1,410 firms nationwide from April 1 to May 6, 2009. The survey response rate for this quarter was 77.6 percent, higher than last quarter’s 75.3 percent.

By type of business, the responses showed that 10.9 percent were from importers, 7.5 percent were exporters, and 16.3 percent were both importers and exporters. About 65 percent of the respondents were neither importers nor exporters or did not specify their firm type. –Maricel E. Burgonio, Reporter, Manila Times