MANILA, Philippines — Companies have put on hold plans to expand their operations and hire workers in the second quarter of the year due to insufficient demand and high interest rates.
Redentor Paolo Alegre Jr., officer-in-charge of the Monetary Policy Sub-Sector at the Bangko Sentral ng Pilipinas, said the results of the First Quarter 2023 Business Expectations Survey (BES) showed the percentage of businesses in the industry sector with expansion plans declined marginally to 19.1 percent from 19.5 percent in the fourth quarter of last year.
In particular, Alegre said the increase in the percentage of firms with expansion plans belonging to the mining and quarrying sub-sector was offset by the decline in the percentage of firms with expansion plans in the manufacturing, electricity, gas and water and agriculture, fishery and forestry sub-sectors.
On the other hand, he said the percentage of industry firms with expansion plans for the next 12 months rose to 26 percent from 22.9 percent.
This, he explained, was driven by the increase in the percentage of firms with expansion plans from the mining and quarrying, manufacturing and the agriculture, fishery and forestry sub-sectors.
From April to June last year, Alegre said the employment outlook index declined sharply to 13.4 percent from 21.2 percent in the Q4 2022 survey results.
“The lower reading in Q1 2023 suggests that hiring intentions may turn less favorable for the next quarter,” Alegre said.
Alegre said employment prospects for the next 12 months are expected to improve as the employment outlook index increased to 36.4 percent from 29 percent in the previous quarter’s survey.
He said the survey conducted from Jan. 13 to March 6 covering 1,554 companies tagged stiff domestic competition, insufficient demand, and high interest rates as the major business risks in the first quarter.
On the other hand, he said concerns over COVID-19 among respondent firms continued to subside as the number of firms indicating COVID-related restrictions as a business constraint significantly declined.
Since May last year, the BSP Monetary Board has raised key policy rates by 425 basis points to tame inflation and stabilize the peso that slumped to an all-time low of 59 to $1 last October.
This brought the benchmark interest rate to a 16-year high of 6.25 percent from an all-time low of two percent.
Inflation averaged 8.6 percent in the first two months of the year despite slightly dipping to 8.6 percent from a 14-year high of 8.7 percent in January. It accelerated to 5.8 percent last year, exceeding the central bank’s two to four percent target, from 3.9 percent.
“For Q1 and Q2 2023, and the next 12 months, businesses expect that the peso may appreciate against the US dollar and the peso borrowing and inflation rates may rise,” Alegre said.
Although businesses expect inflation to breach the upper end of the government’s two to four percent inflation target range for 2023-2024, Alegre said inflation expectations among businesses may ease in the near term as the number of respondents who expected higher inflation declined compared with the fourth quarter 2022 survey results.
He said businesses expect that inflation for the first and second quarters of the year as well as the next 12 months to average seven percent, 6.9 percent and 6.6 percent, respectively.
He said the firms are anticipating that the peso-dollar rate may average at 55.40 to $1 for the first and second quarter before appreciating to 55.30 to $1 for the next 12 months.