Fewer firms to expand, hire workers in Q3

MANILA, Philippines — Rising global oil prices, higher inflation and interest rates as well as the weak peso have prompted fewer companies to expand and hire more workers for the third quarter of the year.

Redentor Paolo Alegre, head of the Department of Economic Statistics at the Bangko Sentral ng Pilipinas (BSP), said results of the latest Business Expectation Survey (BES) showed the percentage of businesses with expansion plans in the industry sector for the next quarter edged lower to 34.2 percent from 35.1 percent the previous quarter.

Alegre said the electricity, gas and water sector recorded slightly lower expansion plans, while agriculture, fishery and forestry, mining and quarrying, and manufacturing lodged stronger expansion plans.

On the other hand, he pointed out the employment outlook index for the third quarter declined to 24.9 percent in the second quarter from 29.9 percent in the first quarter.

“The employment outlook index for the next quarter remained positive across sectors although lower compared to a quarter ago. This suggests that more firms will continue to hire new employees than those that indicated otherwise, although the number of new hires could be lower compared to the previous quarter’s survey,” he added.

Alegre said, the outlook on the volume of business activity for the third quarter fell to 43.2 percent from 48.9 percent.

The survey showed the average capacity utilization in the industry and construction sectors inched up to 74.8 percent in the second quarter from 74.3 percent in the first quarter.

For the third quarter, Alegre said the business outlook is less positive, with the overall confidence index declining to 40.4 percent in the second quarter from 47.8 percent in the first quarter.

The respondents cited the interruption of business activities during the rainy season, lower consumer demand as households prioritize enrolment expenses, and expectations of higher commodity prices.

He added the percentage of respondents expecting higher inflation rate increased to 63.5 percent in the second quarter from 61.3 percent in the first quarter, while respondents expecting the borrowing rate to increase rose to 21.7 percent from 19.6 percent.

Furthermore, he said the percentage of respondents seeing the peso further weakening against the dollar also increased to 22.7 percent from 11.7 percent.

The BSP’s Monetary Board raised interest rates for the first time in more than three years last May 10 as inflation forecasts shifted higher, indicating that inflation pressures could become more broad-based.

The central bank raised benchmark rates by 25 basis points to arrest potential second round effects by tempering the buildup in inflation expectations. It raised its inflation forecast to 4.6 percent instead of 3.9 percent this year and to 3.4 percent instead of three percent next year.

Inflation kicked up to a fresh five-year high of 4.5 percent in April from 4.3 percent in March, bringing average inflation to 4.1 percent in the first four months of the year, exceeding the two percent to four percent target of the BSP.

The peso has been the region’s second worst performing currency, depreciating by about five percent, after the Indian rupee due to strong demand for dollars to finance imports of capital equipment and raw materials.