Freeman Cebu Business

Philippines business confidence weakens to 33.1 percent in Q1

Ehda M. Dagooc - The Freeman

CEBU, Philippines — Business sentiment in the Philippines turned less upbeat in the first quarter of 2024 as the overall confidence index (CI) declined to 33.1% from 35.9% in the same period in 2023.

According to Bangko Sentral ng Pilipinas (BSP), this is reflective of the combined decrease in the percentage of optimists and the increase in the percentage of pessimists.

This year’s first quarter CI turned less buoyant due mainly to the firms’ concerns over the: post-holiday decline in demand for goods and services and slowdown in business activities; persistent inflationary pressures stemming from higher good and oil prices and its impact on the economy; stiff competition; and adverse effects of a strong El Niño event in 2024 on the agricultural sector.

On the other hand, for the second quarter of this year, the country’s business confidence was more bullish as the overall CI rose to 48.1% from 38.2% in the fourth quarter 2023 survey result.

The firms’ more optimistic outlook for the second quarter of 2024 was attributed to their expectation of the following; higher demand for products and services; completion of more projects due to a more conducive business environment; seasonal uptick in business activities in the tourism and fisheries sub-sectors during the summer and open fishing seasons; business expansions and development of new products; and easing inflation.

The BSP report further revealed that for the next 12 months, business confidence was similarly more upbeat as the overall CI increased to 60.8% from 54% in the fourth 2023 survey result.

The firms’ more buoyant outlook for the next 12 months was attributed primarily to their expectations of sustained strong demand for products and services, continued favorable economic conditions,  lower inflation,  business expansions, and lower interest rates.

Sentiments Across Sectors

Business sentiment across all sectors is generally more optimistic for the second quarter of 2024 and the next 12 months.

Compared to the fourth quarter of 2023, the sentiment of firms in the first quarter of 2024 was less upbeat for the industry and wholesale and retail trade sectors, more buoyant for the construction sector, and steady for the services sector. The business sentiment for Q2 2024 was more optimistic across all sectors. For the next 12 months, the outlook of businesses across all sectors was more upbeat, except for the construction sector whose outlook remained favorable for the said period.

Outlook across all types of trading firms is more bullish for the second quarter of this year and the next 12 months. The outlook of importers

The outlook of importers, exporters, and domestic-oriented firms was less optimistic, while that of the dual-activity firms was more upbeat in first quarter of 2024.

For the second quarter this year and the next 12 months, the business outlook was bullish across all types of trading groups as they posted positive increases in their Cis.

Meanwhile, the average capacity utilization in the industry and construction sectors in first quarter 2024 increased to 72.3% from 70.9% in fourth quarter of 2023.

Moreover, businesses, in general, may hire more workers while industry sector firms, in particular, may expand their product lines or production capacity for second quarter 2024 and the next 12 months.

Financial Access

According to BSP, firms expect tight financial conditions and access to credit in the first quarter of 2024. The cash or liquidity positions of firms may remain tight as the financial condition index stayed negative at -15.5 percent from -15.1 percent.

However, businesses anticipated less tight access to credit in the first quarter of 2024 as its corresponding index became less negative at -0.6 percent from -3.5 percent in Q4 2023.

Businesses expect a stronger peso, but higher inflation and interest rates in the first and second quarters and the next 12 months.

The business sector expects that the peso may appreciate against the U.S. dollar, and the inflation and peso borrowing rates may rise in the first half of 2024 and the next 12 months.

Further, firms expect that inflation may remain above the upper end of the National Government’s 2–4 percent inflation target range for 2024-2026.

In particular, businesses expect that the inflation rate may average 5 percent in the first half of 2024 and the next 12 months. — (FREEMAN)

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