More firms keen to expand despite lower capacity utilization

MANILA, Philippines — More companies are set to pursue their expansion plans in the third quarter despite a slight decline in average capacity utilization, according to a survey conducted by the Bangko Sentral ng Pilipinas (BSP).

Redentor Paolo Alegre, director of the BSP’s Department of Economic Statistics (DES), said the result of the Business Expectation Survey (BES) showed the percentage of businesses with expansion plans for the next quarter improved to 33.5 percent from the previous quarter’s 33.2 percent.

Alegre said stronger expansion plans were recorded across sub-sectors, except for manufacturing whose expansion plans were unchanged from a quarter ago.

However, Alegre said the employment outlook index for the next quarter slipped to 26 percent from 29.7 percent, suggesting the possibility of a drop in the number of new hires.

According to Alegre, employment prospects were generally expected to moderate across sectors, except for the services sector which remained steady. “Employment outlook remains positive, while expansion plans are slightly higher,” he said.

According to Alegre, average capacity utilization in the industry and construction sectors was lower at 75.5 percent for the second quarter from 76.5 percent in the first quarter.

He said major constraints of the second quarter BES conducted from April 1 to May 28 include domestic competition and insufficient demand leading to low sales volume as indicated by 55.2 percent and 23.3 percent of the total number of respondents, respectively.

However, Alegre said the percentage of respondents’ whose operations were affected by business constraints showed a broadly declining trend since the start of the nationwide survey in the fourth quarter of 2006.

“The easing of these business constraints may indicate that business conditions are improving,” Alegre said.

He said firms expect a stronger peso, lower inflation, but higher interest rates for the second quarter.

“The survey results showed that businesses anticipated the peso to appreciate, inflation to decrease, but interest rates to increase for the current quarter,” he said.

Meanwhile, he said respondents expected the peso to depreciate and inflation and interest rates to go up for the third quarter.

“Businesses are expecting that the rate of increase in commodity prices will remain within, but at the upper bound of the government’s two to four percent inflation target range for 2019, at 3.9 percent for the second quarter and four percent for the third quarter from five percent and 4.9 percent, respectively, in the previous quarter’s survey results,” Alegre said.

He said businesses anticipated that the peso would average at 52.3 to $1 for the second quarter and 52.4 for the third quarter.

“With regard to expectations of higher interest rates, the percentage of respondents that said so decreased for the current and next quarters compared to those in the previous quarter’s survey,” he said.