Consumer, business optimism dips on inflation, hikes

MANILA, Philippines — Filipino consumers and businesses turned less optimistic in the fourth quarter of the year due to the economic slowdown in the third quarter as well as elevated inflation leading to higher interest rates, the Bangko Sentral ng Pilipinas (BSP) reported yesterday.

BSP Deputy Governor Diwa Guinigundo said both the overall consumer outlook index under the Consumer Expectations Survey and the overall business confidence index under the Business Expectations Survey slipped in the fourth quarter.

“The results of these two quarterly surveys are a result of many factors coming together. I am sure they also noted the slowdown in economic activity during the course of the year,” Guinigundo said.

The country’s gross domestic product (GDP) growth eased to its slowest pace in three years, to six percent in the third quarter from 6.2 percent in the second quarter and 6.6 percent in the first quarter.

This brought the GDP expansion to 6.3 percent in the first three quarters of the year, slightly lower than the revised 6.5 to 6.9 percent target set by economic managers. The Development Budget Coordination Committee (DBCC) originally penned a growth target range of between seven and eight percent.

On the other hand, inflation finally eased for the first time this year at a four-month low of six percent in November from a near 10-year high of 6.7 percent in October.

However, the average inflation of 5.2 percent from January to November this year was still above the central bank’s two to four percent target.

This prompted the BSP’s Monetary Board to raise interest rates by 175 basis points in five straight rate-setting meetings since May this year to curb rising inflationary expectations.

Redentor Paolo Alegre, head of the central bank’s Department of Economic Statistics (DES), said the overall confidence index declined to -22.5 percent in the fourth quarter of the year from -7.1 percent in the third quarter.

This was the lowest confidence index since the fourth quarter in 2014.

Alegre said respondents of the survey attributed their bearish outlook for the fourth quarter to higher prices of commodities, low salary or income, increase in household expenses, no increase in income and upsurge in the number of unemployed.

He added respondents also cited the occurrence of typhoon and other calamities in the third quarter as reasons behind their weaker sentiment for the current quarter.

Alegre said the confidence index for the first quarter of 2019 reverted back to negative territory at -0.8 percent from the 3.8 percent in the previous quarter due to higher prices of goods, low salary or income, rise in expenditures, no increase in income and high unemployment rate.

On the other hand, Alegre also reported business outlook on the economy turned less optimistic for the fourth quarter, with the overall confidence index declining to 27.2 percent from 30.1 percent in the third quarter.

This was the lowest level since Q1 2010, he said.

Despite the expected uptick in demand during the Christmas season, Alegre said business outlook was less buoyant for the current quarter due to higher inflation driven by rising raw material costs and global oil prices, weakening peso, higher interest rates, decrease in volume of sales and orders and lack of supply of raw materials.

Respondents also expected the less bullish business conditions to continue in the first quarter of next year, as the index remained positive, but lower at 29.4 percent from 42.6 percent in the previous quarter, Alegre said.

Alegre added respondents attributed their weaker outlook to the usual slowdown in consumer demand after the holiday season.

Moreover, sentiment of firms was tempered by expectations of a peso depreciation, which increases the cost of imports, as well as higher inflation and interest rates.

Guinigundo said authorities are confident that results of both surveys would turn more favorable in the next quarter as the current results did not factor in the easing of inflation as well as non-monetary measures such as the passage of the non-tariffication bill.

“We should also see some gains in terms of real GDP for the fourth quarter of 2018 and we should also see sustained gains,” Guinigundo added.