Business confidence improves on spending, oil hopes

MANILA — Philippine business sentiment improved in May as firms expected stronger consumer spending, better corporate earnings, lower oil prices, and easing geopolitical tensions, the Bangko Sentral ng Pilipinas said.

The BSP’s latest monthly Business Expectations Survey showed the overall confidence index improved to -25.2% in May from -35.8% in April for the current month, signaling that firms remained pessimistic but less so than in the previous survey round.

A negative confidence index means more respondents were pessimistic than optimistic about the economy.

The BSP said businesses were also more upbeat for the next three months and the next 12 months, reflecting expectations of better economic conditions, improved investor confidence, and possible relief from global risks.

For the three-month outlook, the confidence index turned positive at 0.6% in May from -7.5% in April.

For the 12-month outlook, the confidence index rose to 27.8% from 19.5%.

The May survey attributed the less pessimistic outlook to expectations of higher consumer spending and corporate earnings, as well as lower oil prices and energy costs.

The BSP report said firms expect better business growth prospects in manufacturing, construction, and business process outsourcing over the next three months.

It also said businesses expect higher public works spending and declining oil prices to support activity in the near term.

For the 12-month horizon, firms cited easing inflation and oil price pressures, a possible resolution of the Middle East conflict, and a recovery in investor confidence.

Business activity indicators also improved in May, with the current-month volume of business activity index rising to -4.5% from -15.3% in April.

The volume of total orders booked index improved to -2.2% from -15.6%.

The financial condition index rose to -25.7% from -35.5%, indicating that firms still saw financial conditions as tight but less severe than a month earlier.

The credit access index also improved to -7.3% from -9.9%, suggesting that access to financing remained constrained but less tight.

Average capacity utilization in the industry and construction sectors edged up to 70.5% in May from 69.9% in April.

The BSP said respondent firms cited stiff domestic competition, insufficient demand, high interest rates, and elevated oil prices caused by the Middle East conflict as key business constraints.

Among constraints reported in May, domestic competition was cited by 62.4% of firms, insufficient demand by 35.3%, high interest rates by 26.9%, unclear economic laws by 21.4%, financial problems by 12.9%, labor problems by 11.4%, lack of materials input by 8%, access to credit by 8.8%, and lack of equipment by 5.5%.

Another 31.4% cited other constraints, while 9.6% reported none.

Employment prospects improved, with the employment outlook index for the next three months rising to 11.9% from 6.1% in April.

The employment outlook index for the next 12 months rose to 20.4% from 9.5%.

Despite better hiring intentions, the share of industry firms planning to expand operations declined to 9.7% for the next three months from 14% in April.

Expansion plans for the next 12 months also fell to 11.8% from 19%.

The BSP said most industry firms remained in a wait-and-see stance amid continued uncertainty.

Businesses expect inflation to stay elevated over the next 12 months and remain above the BSP’s 4% tolerance ceiling.

Year-ahead inflation expectations rose to 5.9% in May from 4.2% in April.

For the current month and the next three months, firms expected inflation at 6.6%.

Businesses that expected higher inflation cited the ongoing Middle East conflict and the closure of the Strait of Hormuz, higher energy costs and supply constraints, and peso depreciation.

The inflation rate confidence index eased but remained elevated at 63.6% for the current month, 48.6% for the next three months, and 18% for the next 12 months.

The peso borrowing rate confidence index rose to 6.8% for the current month, 10.9% for the next three months, and 23.8% for the next 12 months, indicating that more firms expect borrowing costs to increase.

The exchange rate confidence index improved to -30.4% for the current month and -14.1% for the next three months, indicating expectations of peso depreciation against the U.S. dollar.

For the next 12 months, the exchange rate confidence index reached 4.6%, indicating that more firms expect the peso to appreciate over that horizon.

Businesses expected the peso-dollar exchange rate at PHP 60.86 to USD 1 for the current month, PHP 61.27 to USD 1 three months ahead, and PHP 61.21 to USD 1 12 months ahead.

The survey covered 502 firms nationwide from May 5 to 31, including 196 companies in the National Capital Region and 306 firms outside the NCR across all 18 regions.

The nationwide response rate was 44.8%, with a sampling error margin of plus or minus 6.4 percentage points.

The BSP said samples were drawn through stratified random sampling from the Bureau van Dijk database of the Top 7,000 Corporations based on total assets in 2017.

Of the 225 firms that responded in May, 83 were from the NCR and 142 were from areas outside the NCR.

By sector, 58 respondents were from industry, including agriculture, fishery, and forestry; 11 were from construction; 45 were from wholesale and retail trade; and 111 were from services.

Services accounted for 49.3% of May respondents, followed by industry at 25.8%, wholesale and retail trade at 20%, and construction at 4.9%.

By trading group, 31 respondents were importers, nine were exporters, 26 were both importers and exporters, 148 were domestic-oriented, and 11 did not specify their trading classification.

Domestic-oriented firms made up 65.8% of respondents, importers 13.8%, firms that both import and export 11.6%, exporters 4%, and unspecified firms 4.9%.

By employment size, 124 respondents were small firms with fewer than 100 workers, 63 were medium firms with 100 to fewer than 500 workers, 25 were large firms with 500 or more workers, and 13 did not specify their size.

Small firms accounted for 55.1% of respondents, medium firms 28%, large firms 11.1%, and unspecified firms 5.8%.

The BSP said it continues to closely monitor the impact of the Middle East conflict on domestic prices, the broader economy, and consumer and business expectations.

The central bank said its shift to a monthly Business Expectations Survey in January gives it a timelier assessment of business confidence and allows it to respond more proactively to domestic and global developments.