BSP survey: Business optimism down

Businesses have turned less optimistic, with the confidence index hitting its lowest level in more than eight years due to higher interest rates, rising prices of basic commodities, rising overhead costs due to higher wages, seasonal factors and the weak peso.

Redentor Paolo Alegre, head of the Department of Economic Statistics (DES) of the Bangko Sentral ng Pilipinas (BSP), said the overall business confidence index in the Business Expectation Survey slipped to 30.1 percent in the third quarter from 39.3 percent in the second quarter, and from 37.9 percent in the third quarter last year.

This was the third straight quarter that the business confidence index declined after hitting 43.3 percent in the fourth quarter of last year. This was also the lowest since hitting 22 percent in the fourth quarter of 2009.

Alegre said respondents cited higher prices of basic commodities in the global market, augmented by the effects of the implementation of Republic Act 10963 or the Tax Reform for Acceleration and Inclusion (TRAIN) law on domestic goods.

Alegre added businesses also cited rising overhead costs and lack of supply of raw materials as well as seasonal factors.

He explained respondents also expect the peso to further weaken to P53.10 to $1 in the third quarter and to P53.30 to $1 in the fourth quarter.

As expected, he added companies expect lower business activity and orders in the third quarter due to the opening of classes, the rainy season and the suspension of commercial fishing in Davao Gulf from June to August.

Furthermore, Alegre said businesses expect tighter financial conditions after a series of rate hikes by the BSP.

The central bank’s Monetary Board has raised interest rates by 100 basis points so far this year to rein in inflationary expectations.

Inflation averaged 4.8 percent in the first eight months of the year before kicking up to a fresh nine-year high of 6.4 percent in August from 5.7 percent in July, prompting economists to call for another 50 basis point rate hike on Sept. 27.

Alegre said business sentiment across all sectors including construction, business and retail trade as well as services sector was less upbeat in the third quarter.

For the fourth quarter of the year, companies turned more upbeat as the business confidence index improved to 42.6 percent from the previous quarter’s 40.4 percent.

Alegre added factors behind the increased optimism include the uptick in consumer demand during the Christmas holiday and harvest seasons, continued increase in orders and projects, expansion of businesses and new product lines and continued rollout of government infrastructure and other development projects.