Business confidence slumps as lockdowns, inflation bite

MANILA, Philippines — Business confidence slumped amid the resurgence of COVID-19 infections, which led to the reimposition of harder lockdown measures as well as elevated inflation, according to the Bangko Sentral ng Pilipinas (BSP).

Redentor Paolo Alegre, senior director of the BSP’s Department of Economic Statistics, said that based on the latest Business Expectations Survey (BES), the overall business confidence index slumped to 31.4 percent for the next three months from the previous quarter survey result of 42.8 percent and to 52.5 percent from 60.5 percent for the next 12 months.

Alegre attributed the respondents’ less optimistic outlook for the second and third quarters to the decision of the government to place the National Capital Region and nearby provinces (NCR Plus) under enhanced community quarantine from March 29 to May 15 due to a resurgence in COVID-19 cases.

He said respondents also cited the elevated inflation, which exceeded the BSP’s two to four percent target due to supply side shocks caused by weather-related disturbances and African swine fever outbreak.

Inflation averaged 4.4 percent from January to May due to rising global oil prices and higher food prices particularly meat.

“Respondents also cited concerns over the pace of the vaccination rollout for the current quarter as well as the expected seasonal factors for the third quarter, such as the close of the milling season and the usual slack in demand for power and construction materials during the rainy season, as reasons for their less buoyant sentiment for the second and third quarters, respectively,” he said.

The survey, which was conducted from April 7 to May 27 covering 1,513 companies, showed businesses see inflation breaching the upper end of the BSP’s two to four percent target for 2021 and 2022.

Likewise, respondents also expect the peso weakening against the dollar and borrowing rates to rise.

Alegre said the financial conditions index improved slightly, although it remained in the negative territory at -32.1 percent for the second quarter from -32.9 percent in the first quarter as more firms indicated that their access to credit was still constrained.

Despite the general drop in busines confidence during the review period, Alegre said consumers turned more optimistic as the overall confidence index improved to 1.3 percent for the third quarter from the previous quarter’s -2.2 percent and to 19.8 percent from 17.9 percent for the next 12 months.

For the second quarter, the confidence index improved to -30.9 percent from the previous quarter’s -34.7 percent.

“The improved confidence index, albeit remaining negative, indicates that the number of households with pessimistic views decreased relative to the number in the first quarter, but was still more than those with optimistic views,” he said.

Alegre said respondents of the latest Consumer Expectation Survey (CES), conducted from April 21 to May 1 covering 5,702 households, cited expectations of more jobs and permanent employment as well as higher income for their improved optimism.

He said consumers also noted the effective government policies and programs, particularly to address COVID-19-related concerns, such as the availability of vaccines, provision of financial assistance, and easing of quarantine restrictions.

According to the result of the survey, the outlook on household spending on basic goods and services for the third quarter declined to 25.4 percent after posting an improvement of 29 percent in the first quarter.

Furthermore, he said the percentage of households that considered the next 12 months as favorable time to buy big-ticket item decreased to the lowest reading since the first quarter of 2007 at 3.6 percent from 3.7 percent in the first quarter.

Consumers are also expecting inflation to rise, but would stay within the BSP’s two to four percent target. Just like businesses, consumers also expect the peso to depreciate against the greenback.