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Firms likely to freeze hiring, cut workforce in first quarter 2011 - BSP survey

MANILA, Philippines - A survey conducted by the Bangko Sentral ng Pilipinas (BSP) showed businesses are likely to put on hold the hiring of more workers and even contemplate on reducing their workforce in the first quarter of next year.

BSP Deputy Governor Diwa Guinigundo said results of the Business Expectations Survey for the fourth quarter of 2010 showed that firms anticipate less favorable employment conditions in the first quarter of 2011 compared to the previous quarter due largely to the lower employment outlook of the industry and wholesale and retail trade sectors.

The survey conducted by the BSP’s Department of Economic Statistics (DES) showed that the Employment Outlook Index for the first quarter of 2011 declined to 21.1 percent from the previous quarter’s 24 percent.

Latest data from the National Statistics Office (NSO) showed that the unemployment rate eased to 6.9 percent in July from eight percent in April. This put the estimated number of jobless Filipinos to 2.7 million in July compared to 3.1 million in April.

Guinigundo pointed out that companies in the manufacturing as well as wholesale and retail trade sectors normally expect a slowdown in their business acitivities in the first quarter of every year, after a run-up in the fourth quarter the previous year, due to the Christmas season.

The BSP data showed that the Volume of Business Activity Index for the next quarter also fell to 45.8 percent from the previous quarter’s 59.2 percent. This was a complete reversal of the current quarter’s outlook wherein the respondents of the survey saw an increase in the index to 42.8 percent from the previous quarter’s 34.9 percent, as well as the Volume of Total Order Book Index to 37.7 percent from 30.2 percent.

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As a result of the expected slowdown in business activities, Guinigundo said fewer companies signified plans to invest more to expand the capacity of their existing operations in the country.

“With the less upbeat business outlook of the industry sector on the economy, fewer firms or 25.7 percent indicated expansion plans for the first quarter of next year compared to the last quarter’s survey of 27 percent,” he added.

The mining and quarrying sector posted the biggest decline to 34.7 percent, from 45 percent followed by electricity, gas and water to 20.4 percent from 28.2 percent; agriculture, fishery and forestry to 41.6 percent from 43.4 percent; and manufacturing to 24.7 percent from 25.4 percent.

The BSP official said competition, weak demand leading to low sales volume, and financial problems were the factors that limited business activities in the last quarter of the year.

However, respondents have a generally favorable perception on the direction of selected economic indicators for the current and next quarters as fewer companies expect lower interest rates, stable inflation and stronger peso.

“Fewer respondents expected inflation to increase in the current and next quarters despite demand-based price pressures arising from the stronger-than-expected domestic economic recovery, the impact of weather conditions on agricultural production, and petitions for electricity rate adjustments, as these factors could be mitigated by a tepid global economic recovery and the peso appreciation,” the BSP added.

More respondents expect the peso to continue to strengthen against the dollar given the sustained foreign exchange inflows from merchandise exports, business process outsourcing (BPO) services, foreign direct investments (FDIs), foreign portfolio investments of hot money as well as robust remittances from overseas Filipinos.

Last week, the BSP reported that its measure of business confidence hit a new all-time high of 50.6 percent in the fourth quarter of the year from the previous quarter’s 45 percent on expectations the Aquino administration would be able to sustain the strong economic rebound fuelled by strong remittances from overseas Filipinos in time for the Christmas season.

The BSP’s DES director Rosabel Guerrero said the all-time high business outlook for the current quarter was driven mainly by expectations of sustained improvement in the economy on the back of strong domestic demand fuelled partly by the steady stream of overseas Filipinos’ remittances and higher capital inflows.

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. A positive confidence index indicates a favorable view.

Guerrero explained that the sentiment of businessmen remained positive and has been on an uptrend since the third quarter of 2009. Data showed that the confidence index steadily improved from 18.4 percent in the third quarter of last year, 22 percent in the fourth quarter, 39.1 percent in the first quarter of the year, 43.9 percent in the second quarter, and 45 percent for the third quarter.

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