More businesses to expand in Q4 – survey

MANILA, Philippines — More companies are planning to expand their operations in the fourth quarter despite the decline in the country’s business confidence index due to elevated inflation and volatile financial markets, according to the Bangko Sentral ng Pilipinas (BSP).

Based on the results of the
latest Business Expectations Survey (BES), BSP senior director Redentor Paolo Alegre said the percentage of businesses in the industry sector with expansion plans for the fourth quarter increased to 23.4 percent from 17.9 percent in the previous quarter’s survey.

This despite the decline in the overall business confidence index for the next quarter to 43.9 percent from 46.4 percent, following the drop in the index to 26.1 percent from 35.4 percent in the third quarter.

Alegre said business sentiment weakened in the third and fourth quarters primarily due to the faster rise in the prices of consumer goods, services, raw materials and production costs, rising fuel prices, decline in sales and demand, peso depreciation, and the continuing public health threat of COVID-19.

Likewise, he added that business sentiment also declined further as the overall confidence index decreased to 57.7 percent from the previous quarter’s survey result of 59.9 percent.

Alegre said firms expected that their financial condition and access to credit tightened in third quarter as the BSP further raised interest rates to rein in inflation.

The BSP has so far raised key policy rates by 225 basis points this year, bringing the benchmark interest rate to 4.25 percent from an all-time low of two percent.

On the other hand, Alegre said the percentage of industry firms with expansion plans for the next 12 months decreased to 23.2 percent from 24.4 percent.

Despite the expansion plans for the fourth quarter, the BSP official said the percentage of firms that look forward to hiring more people decreased, with the employment outlook index declining to 22.7 percent from 25.4 percent in the previous quarter’s survey results.

“The lower reading in the third quarter suggests that hiring intentions may turn less favorable for the next quarter, while employment prospects for the next 12 months remain optimistic,” he added.

The respondents of the survey conducted from July 6 to Aug. 15 are expecting a weak peso as well as higher borrowing and inflation rates in the third quarter and in the near term.

“Businesses expected the peso may continue to depreciate against the dollar and the peso borrowing and inflation rates may rise in the third quarter and fourth quarter, and the next 12 months,” Alegre said.

Furthermore, he added that businesses expected that inflation may breach the upper end of the government’s two to four percent target range for 2022 to 2023.

In particular, firms were expecting that inflation may settle at 5.6 percent in the third and fourth quarters and at 5.4 percent for the next 12 months.

Inflation averaged 4.9 percent from January to August and exceeded the BSP target, prompting the Monetary Board to raise its inflation forecasts to 5.6 percent instead of 5.4 percent for this year and to 4.1 percent instead of four percent for next year.