Business confidence turns less optimistic in first quarter, more bullish for second quarter and next 12 months: BSP
Business sentiment turned less upbeat in the first quarter as the overall confidence index (CI) declined to 33.1 percent from 35.9 percent in the fourth quarter of 2023.
This is reflective of the combined decrease in the percentage of optimists and increase in the percentage of pessimists. The first quarter CI turned less buoyant due mainly to the firms’ concerns over the: (a) post-holiday decline in demand for goods and services and slowdown in business activities, (b) persistent inflationary pressures stemming from higher food and oil prices and its impact on the economy, (c) stiff competition, and (d) adverse effects of a strong El Nino event in 2024 on the agriculture sector.
For the second quarter, business confidence was more bullish as the overall CI rose to 48.1 percent from 38.2 percent in the fourth quarter 2023 survey result.
The firms’ more optimistic outlook for the second quarter was attributed to their expectations of: (a) higher demand for products and services, (b) completion of more projects due to a more conducive business environment, (c) seasonal uptick in business activities in the tourism and fisheries sub-sectors during the summer and open fishing seasons, (d) business expansions and development of new products, and (e) easing inflation.
For the next 12 months, business confidence was similarly more upbeat as the overall CI increased to 60.8 percent from 54 percent in the fourth quarter 2023 survey result.
The firms’ more buoyant outlook for the next 12 months was attributed primarily to their expectations of: (a) sustained strong demand for products and services, (b) continued favorable economic conditions, (c) lower inflation, (d) business expansions, and (e) lower interest rates.
Compared to the fourth quarter of 2023, the sentiment of firms in the first quarter was less upbeat for the industry and wholesale and retail trade sectors, more buoyant for the construction sector and steady for the services sector.
The business sentiment for the second quarter was more optimistic across all sectors. For the next 12 months, the outlook of businesses across all sectors was more upbeat, except for the construction sector whose outlook remained favorable for the said period.
The outlook of importers, exporters, and domestic-oriented firms was less optimistic, while that of the dual-activity firms was more upbeat in the first quarter. For the second quarter and the next 12 months, the business outlook was more bullish across all types of trading groups as they posted positive increases in their CIs.
The average capacity utilization in the industry and construction sectors in Q1 2024 increased to 72.3 percent from 70.9 percent in the fourth quarter of 2023.
Moreover, businesses, in general, may hire more workers while industry sector firms, in particular, may expand their product lines or production capacity for second quarter and the next 12 months.
The cash or liquidity positions of firms may remain tight as the financial condition index stayed negative at -15.5 percent from -15.1 percent.
However, businesses anticipated less tight access to credit in the first quarter as its corresponding index became less negative at -0.6 percent from -3.5 percent in the fourth quarter of 2023.
Businesses expect that the peso may appreciate against the US dollar, and the inflation and peso borrowing rates may rise in the first half of 2024 and the next 12 months.
Further, firms expect that inflation may remain above the upper end of the National Government’s 2?4 percent inflation target range for 2024-2026. In particular, businesses expect that the inflation rate may average at 5 percent in the first half of 2024 and the next 12 months. BSP
