Businesses expanding further

MANILA, Philippines — Companies are still planning to expand their operations despite the decline in the country’s business confidence index due to elevated inflation and volatile financial markets, according to the Bangko Sentral ng Pilipinas.

Based on the results of the 2022 Q3 Business Expectations Survey (BES), the percentage of businesses in the industry sector with expansion plans for the current quarter increased to 23.4 percent from 17.9 percent in the previous quarter’s survey.

This despite the decline in the overall business confidence index for the fourth quarter to 43.9 percent from 46.4 percent, following the drop in the index to 26.1 percent from 35.4 percent in the third quarter.

According to BSP, business sentiment weakened in the third and fourth quarters primarily due to the faster rise in prices of consumer goods, services, raw materials and production costs, rising fuel prices, decline in sales and demand, peso depreciation, and the continuing public health threat of COVID-19.

Likewise, sentiment also declined further as the overall confidence index for the next 12 months decreased to 57.7 percent from the previous quarter’s survey result of 59.9 percent.

The survey was conducted from July 6 to Aug. 15 covering 1,504 respondents.

Tighter financial condition

Companies said that their financial condition and access to credit tightened in third quarter as the BSP Monetary Board further raised interest rates to combat inflation.

The central bank has so far raised key policy rates by 300 basis points this year, bringing the benchmark interest rate to a 14-year high of 4.25 percent from an all-time low of two percent to tame inflation and stabilize the peso.

The BSP now expects inflation to average 5.8 instead of 5.6 percent after averaging 5.4 percent from January to October this year, well above the central bank’s two to four percent target.

Inflation quickened to a 14-year high of 7.7 percent in October from 6.9 percent in September and the central bank is likely to deliver another 50-basis point hike in December to anchor inflation expectations.

For the next 12 months, the survey showed that 23.2 percent of the respondent firms announced plans to expand their operations, albeit slower than the 24.4 percent in the previous quarter results.

Hire fewer workers

Despite the expansion plans for the current quarter, the survey showed that the percentage of firms that look forward to hiring more people decreased with the employment outlook index declining to 22.7 percent from 25.4 percent in the previous quarter’s survey results.

“The lower reading in Q3 2022 suggests that hiring intentions may turn less favorable for the next quarter, while employment prospects for the next 12 months remain optimistic,” the BSP said.

The respondents are expecting a weak peso as well as higher borrowing and inflation rates in the third quarter and in the near term.

“Businesses expected the peso may continue to depreciate against the US dollar and the peso borrowing and inflation rates may rise in Q3 and Q4 2022, and the next 12 months,” it added.

Furthermore, businesses are expecting that inflation may breach the upper end of the government’s two to four percent inflation target range for 2022-2023.

In particular, firms are expecting that inflation would settle at 5.6 percent in the third and fourth quarters of this year and at 5.4 percent for the next 12 months.

Moreover, businesses are anticipating that the peso-dollar rate would average at 55.2 to $1 for the current quarter before strengthening to 54.90 to $1 for the next 12 months.

After slumping by as much as 15.7 percent to hit an all-time low of 59 to $1 in October, the local currency has strengthened back to the 56 to $1 level amid the series of rate hikes as well as active participation in the foreign exchange market by the BSP.