Business confidence shows huge fall in Q2

05/23/2008

Business confidence fell by a substantial 34 points in the second quarter over a year ago as local firms turned cautious on concerns of a looming recession in the United States, the country’s chief trading partner and the effects of high crude oil prices on inflation.

The sentiment index fell to 12.6 percent, which is also 17.3 points down from the previous quarter, according to a quarterly survey of the Bangko Sentral ng Pilipinas (BSP).

This is the second consecutive quarter that the overall confidence index has declined from a previous quarter, according to the BSP.

“The lower index is consistent with the broadly more cautious sentiment of businesses and consumers in many developed economies,” it noted.

Respondents to the quarterly Business Expectation Survey said sentiment had turned cautious due to concerns over a possible recession in the country’s major trading partner, the US; volatile and high crude oil prices; rising prices of goods including food, especially rice and services including transportation and communication; high input and raw materials costs; a possible wage increase; and due to local political noise.

Expectations of increases in non-oil commodity prices in global markets also contributed to the weaker business outlook, the BSP added.

The business outlook for the third quarter came in at 16.6 index points, which was similarly lower by 24.4 points from the previous quarter and 28.1 points down from a year ago.

The confidence level indicated by respondents in both the National Capital Region and elsewhere in the country remained positive but at levels lower than those posted in the previous quarter and a year ago, the BSP noted.

The survey showed businesses engaged in trading were the most optimistic in the second quarter.

All economic sectors posted positive indices, indicating that the number of firms with positive views about business conditions in the second quarter outnumbered those with negative views, the BSP said.

It added, however, business sentiment still declined across sectors.

The confidence indices of the construction sector, at 25.5 percent, and services, 22.4 percent were the highest but were still lower than previous surveys.

The decline in the sentiment of construction firms may signal that demand is cooling in the property market, the BSP said.

“In the case of the services sector, the lower index quarter-on-quarter and year-on-year was noted across all sub-sectors, with the exception of renting and business activities (at 28.3 percent) which posted a 5.5 index point-increase quarter-on-quarter, on account of brisker business during the summer,” it added.

The survey also showed the industry and wholesale and retail trade sectors were less optimistic, with confidence indices of 9.1 percent and 5.4 percent, respectively. Respondents from these two sectors cited the continued rise in input costs, particularly fuel, and the imminent threat of wage hikes as factors adversely affecting their outlook.

All sectoral indices in the next quarter continued to be positive but were lower than previous levels.

Firms considered the high level of competition, both from domestic and foreign firms, and insufficient demand leading to low volume of sales as the key risks to business activity in the second quarter.

Respondent firms anticipated that the peso would remain strong in the second quarter but would weaken by the next quarter.

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