Business sentiment improves in second quarter

MANILA, Philippines - Encouraged by initial signs of improvements in the US and global financial markets, business sentiment improved in the second quarter of the year although executives remained cautiously negative.

The latest Business Expectations Survey (BES) conducted by the Bangko Sentral ng Pilipinas (BSP) showed that sentiment remained firmly negative but there was a small upswing in optimism although not enough to sway overall sentiment.

The BES showed that the latest business confidence index was at -2.6 percent but this was a 21.3-point increase over the previous index recorded at -23.9 percent when business executives were surveyed in February.

BSP Deputy Governor Diwa Guinigundo said the improvement in sentiment was driven by improving confidence in the US and global financial markets that resulted from a fiscal stimulus package committed by the worlds’ 20 richest nations.

According to Guinigundo, the business sector was also encouraged by the government’s Economic Resiliency Plan that included monetary policy easing as well as the deceleration in the inflation rate.

“There were also seasonal factors that contributed to this improvement in sentiment, specifically the expected increase in demand during the summer season and school opening in June,” Guinigundo said.

Guinigundo said businesses are generally more optimistic about their prospects in the third quarter of the year when more favorable global trade conditions are expected.

According to the BES results, the employment outlook for the third quarter remained negative at -6.4 percent, indicating that job losses remained imminent.

The BES said the improvement in overall outlook, while remaining negative, was evident across all sectors. Construction was the most optimistic in the second quarter with the index now at three percent while the services sector was at one percent.

The BES results showed that the export sector showed the biggest improvement in sentiments. The index was still negative at -6.1 percent but this was a 33.7-point improvement from the 39.8-percent index last quarter.

The wholesale sector, however, was at -3.1 percent while the industry sector was at -7.6 percent, higher by an average of 21 points compared with the survey results in the first quarter of this year.

These indices were lower compared to the same period last year however and Guinigundo said this was due to the fact that the economy, in general, was generally better last year. But he added that the quarterly improvement in outlook could be due to the expected increase in demand before classes resume in June.

When asked about their outlook for the third quarter of the year, on the other hand, the BES showed that businesses were anticipating an economic turnaround.

The construction still led all other sectors with the index at 20 percent because construction companies are expecting to benefit from the increase in the government’s infrastructure budget this year.

The BES showed that even the wholesale and retail trade sectors – although the least optimistic – had a confidence index of 10.3 percent for the third quarter when compared with the previous quarter and even last year.

Despite the improving sentiments, however, business remained harshly affected by the global slowdown, with capacity utilization declining below 70 percent for the first time in decades, now recorded at 69.2 percent as productive sectors held back in anticipation of a decline in demand.

The BES also showed that businesses still expect access to credit to be tight, with negative sentiments at 7.2 percent. The survey also showed a decline in the number of firms that intended to expand their operations, shown at 16 percent.