Monday, 23 November 2009

Business Sentiment Continues to Improve in Q4 2009

Bangko Sentral
Media Releases

Businesses continue to have an optimistic outlook in Q4 2009 and Q1 2010

Business optimism continues to improve in Q4 2009. Optimists outnumbered pessimists by a larger margin in Q4 2009 than in previous surveys. This is the third consecutive quarter since Q1 2009 that business sentiment has shown an improvement after the broadly cautious outlook that prevailed in 2008.

The current quarter business confidence index (CI) rose to 22.0 percent compared to 18.4 percent in Q3 2009 and -6.8 percent in Q4 2008. Similarly, the business confidence index for the next quarter (Q1 2010) also improved to 34.0 percent compared to 33.7 percent in Q3 2009 and -0.5 percent in Q4 2008. The confidence index is computed as the percentage of firms that answered in the affirmative less the percentage of firms that answered in the negative with respect to their views on a given indicator. 1

The more buoyant business sentiment reflected expectations of better economic performance in the current and next quarters, with clearer indications of improving conditions in the global economy. It was also in tandem with improving business confidence in countries such as the United States, Japan, Europe, Australia, India, Singapore, Malaysia, and Hongkong. The survey results also suggested that businesses do not anticipate that typhoons Ondoy and Pepeng would have a long-lasting and significant impact on the overall positive direction of economic activity.

Businesses attributed their more favorable outlook to the following factors: 1) supportive macroeconomic conditions such as low inflation and interest rates, relatively stable peso, and sustained foreign exchange inflows from foreign investments and overseas Filipinos’ (OFs) remittances; 2) expected increase in consumer spending due to the holiday season and the forthcoming election; and 3) introduction of new and enhanced business strategies.

By geographic location, respondents from both the National Capital Region (NCR) and the Areas Outside the NCR (AONCR) reported a more positive outlook for Q4 2009 relative to Q3 2009. However, NCR respondents were more upbeat in their outlook on the economy than those from AONCR. This indicated firms’ expectations that economic conditions would be more favorable in NCR than in AONCR.

All types of businesses involved in international commodity trading (i.e., importers, exporters and those engaged in dual activities) anticipated better economic conditions in Q4 2009 with firms engaged in both importing and exporting activities being the most optimistic. Meanwhile, exporters were the least bullish as they continue to face tepid—although slightly improving—global demand.

By employment size, large firms (relative to other sizes of firms) continued to be the most optimistic in their outlook for both Q4 2009 and Q1 2010.

Positive sentiments are observed across all sectors

Favorable business sentiment was noted across all sectors in Q4 2009, partly due to expectations of improved global economic prospects. The services sector had the most favorable business outlook due largely to improved optimism of the financial intermediation and hotels and restaurants sub-sectors. The more buoyant outlook of the financial intermediation sub-sector reflected the resilience of the domestic banking system. Meanwhile, the improvement in the business outlook of hotels and restaurants sub-sector signaled expectations of higher spending of holiday revellers during the Yuletide season.

The sentiment of the wholesale and retail trade sector was also more favorable quarter-on-quarter and year-on-year, due to expectations of stronger business opportunities as a result of heightened consumer demand during the Christmas season.

All sectors, particularly the construction sector, remained optimistic for Q1 2010. Respondents attributed their improved optimism to the expected reconstruction and rehabilitation activities arising from the damages caused by typhoons Ondoy and Pepeng as well as the continuing government infrastructure spending to help lift economic growth.

Firms are optimistic about their own business operations

Respondents are generally enthusiastic that their own business operations would improve in Q4 2009. Firms in the services sector were the most bullish, followed by those in the industry sector. Reflecting the improved outlook of firms in the industry sector regarding their own operations, the average capacity utilization in Q4 2009 rose slightly to 69.8 percent compared to last quarter’s 68.8 percent.

Credit access and financial conditions further improve

Credit access continued to improve in Q4 2009, with more firms experiencing some modest improvement in their access to credit. Financial conditions remained tight but showed signs of easing as fewer respondents expected liquidity problems in Q4 2009 compared to the previous quarter and a year ago.

Employment outlook remains positive while expansion plans increase

The employment outlook for Q1 2010 remained positive. The employment outlook continued to be favorable for all sectors, with the construction and services sectors being the most optimistic.

Consistent with the improvement in the outlook on business operations of the industry sector, more industrial firms compared to the last quarter’s survey indicated expansion plans for Q1 2010.

Competition, weak demand and financial problems are seen as major risks

Competition, weak demand (leading to low sales volume), and financial problems were considered by the respondents as the key challenges to business activity in Q4 2009. The top three business constraints were the same risks identified by respondents in Q3 2009.

Higher inflation, stable interest rates and a stronger peso are expected in Q4 2009

More firms anticipated inflation to accelerate in Q4 2009. This expectation could be attributed to the increases in the prices of basic commodities caused by the damages to crops and infrastructure during the recent typhoons as well as the anticipated increases in oil prices once the current oil price controls imposed by the government are lifted. Despite rising expectations of higher inflation, firms anticipated interest rates to remain stable.

The peso is expected to strengthen against the US dollar in Q4 2009 given the seasonal surge in remittances from overseas Filipinos (OFs) during the holiday season and expectations of increase in foreign investments.

For Q1 2010, business firms anticipate inflation and interest rates to rise and the exchange rate to remain stable.

The survey response rate is 75.8 percent

The Q4 2009 BES was conducted during the period 1 October - 6 November 2009. There were 1,380 firms surveyed nationwide. Respondents were drawn from the Securities and Exchange Commission 2008 Top 7,000 Corporations as follows: 509 companies in NCR (37.0 percent) and 871 firms in AONCR (63.0 percent), covering all 17 regions nationwide. The survey response rate for this quarter was 75.8 percent, with the response rates for NCR and AONCR at 74.7 percent and 76.5 percent, respectively.

A breakdown of responses received by type of business showed that 10.0 percent were importers, 7.7 percent were exporters, and 15.2 percent were both importers and exporters. Sixty-seven percent of the respondents were neither importers nor exporters or did not specify their firm type.


1 A positive CI indicates a favorable view.

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