Bangko Sentral: Business optimism dips in Q1

MANILA, Philippines — Optimism among Philippine businesses fell in the first three months of 2018 amid higher fuel costs stoked by a new tax law and usual lackluster business activity after the holidays, the central bank reported Friday.

 

Business optimism plunged to 39.5 percent from 43.3 percent in the first quarter, according to a quarterly survey conducted by the Bangko Sentral ng Pilipinas from January 8 to February 22.

 

That means although the number of optimists declined, it was still greater than those who turned pessimistic during the quarter, the BSP explained, adding that businesses do tend to be less optimistic every first quarter.

 

Respondents said their less bright quarter-on-quarter outlook was primarily due to stiffer domestic competition, as well as typical slowdown in business activity and demand following a consumer spending spree during the holiday season.

 

Companies also cited concerns over rising fuel prices pumped up by higher international prices of crude oil and increase in excise tax on petroleum products.

 

Businesses disclosed they are starting to feel the “transitory” impact of the newly-enacted Tax Reform for Acceleration and Inclusion (TRAIN) Act to consumer prices, although a significant number of respondents lauded the positive effect of the fresh law.

 

They also see inflation accelerating but to remain within target, while they expect the peso to weaken and interest rates to go up.

 

President Rodrigo Duterte last year signed the TRAIN Act, which aims to generate revenue to fund a multi-billion dollar infrastructure program key to the government's economic agenda.

 

Last January, consumer prices surged to a three-year high of 4 percent, which the BSP partly attributed to the implementation of the TRAIN law that raised excise levies on fuel, sugary drinks and cigarettes, among others.

 

According to the BSP, inflation likely breached the 2-4 percent target range set by the government in February to settle above 4-4.8 percent, as prices reflect the full impact of higher levies under the tax reform.

Despite the usual drop in business optimism during the January-March period, the BSP said sentiment for the next three months improved, picking up to 47.8 percent from 39.7 percent.

 

Employment outlook and expansion plans are also rosy for the second quarter.

 

“This suggests that economic growth could accelerate for the next quarter,” the central bank said.

 

According to respondents polled by the BSP, their optimistic outlook for the second quarter was fueled by the expected surge in demand during the summer amid foreseen influx of local and foreign tourists.

 

They also hope that their businesses will get a boost from anticipated higher levels of household disposable income brought by lower personal income taxes under the TRAIN act.

 

Companies likewise attributed their sanguine business sentiment to heightened government infrastructure spending under the “Build, Build, Build” program.

 

For the next quarter, business optimism was higher across the industry, wholesale and retail trade, and services sectors except for the construction sector, which was more bullish in the first quarter as new projects were expected to be awarded this year.