Business outlook grim BSP survey

MANILA, Philippines – The business sector’s outlook is grim for the third quarter of the year, with companies expecting higher inflation, higher borrowing costs and low growth prospects.

The quarterly Business Expectation Survey (BES) of the Bangko Sentral ng Pilipinas (BSP) showed that the confidence index (CI) turned negative across all sectors for the first time since the third quarter of 2005.

According to Ludivina Gador, deputy director of the BSP’s Department of Economic Statistics, the overall confidence index dropped to negative 12.9 percent.

Gador explained that this showed overwhelming pessimism among business enterprises due to surging prices of fuel and other raw materials as well as the rising domestic prices of food and services.

Gador said there were growing apprehensions over the global economic downturn particularly in the US, rising wages and the political ruckus stirred by the government’s attempt to take over the Manila Electric Co.

Gador said a negative confidence index was last observed in 2005 when business confidence plunged. At the time, the economy was in shambles. On the political front, the Arroyo Cabinet shuddered from the resignation of top economic officials in protest of high-level corruption.

According to the BES results, the services sector was the least pessimistic with the CI at -2.8 percent, while the construction sector suffered a -10.5 percent CI as did the industry sector with a CI of -11.9 percent and the wholesale/retail sector with a CI of 23.2 percent.

The BES results indicated that the industry and trade sectors were particularly affected by the rising costs of fuel, raw materials and wages as well as lower consumer demand from abroad.

The BES also indicated that the credit access index for the third quarter of the year was a reversal from the three percent level in the previous quarter, dropping to -3.5 percent.

The credit access index level was the lowest since the second quarter of 2006, indicating that businesses were expecting a credit crunch in the wake of rising interest rates and increasing caution among banks.

More importantly, the BES also showed a drop in the financial condition index, which was an indication of the internal liquidity of businesses. The index was already in the negative region (-17.8 percent) in the previous quarter and it worsened to -29.1 percent in the third.

Gador said the drop in the index was attributed to expectations of lower volume of sales due to the slowdown in domestic economic growth and higher operating costs brought about by the increase in the minimum wage and inflation rate.

On the other hand, Gador said businesses were more optimistic about their fourth quarter outlook, mainly because of the anticipated increase in consumer spending, funded by remittances from overseas Filipinos.

By the fourth quarter, Gador said there were indications of a turnaround in sentiment with all CIs turning positive across all sectors. She said there were even indications of expansion by industrial firms.

But for both quarters, Gador said the BES results indicated that the business sector expected the peso to weaken in the third and fourth quarters, accompanied by higher inflation and borrowing costs.

“In sum, businesses expect some improvement in the fourth quarter,” she said.