Business confidence stays upbeat in Q4 2023; less buoyant for Q1 2024 and the next 12 months

Business sentiment remained upbeat in Q4 2023 as the overall confidence index (CI) stood at 35.9 percent, up slightly from 35.8 percent in Q3 2023.

This is reflective of the increase in the percentage of optimists, which was barely offset by the increase in the percentage of pessimists.

The current quarter’s CI stayed positive due to the optimistic firms’ expectations of: (a) an increase in demand for goods and services during the Christmas season, (b) sustained economic recovery to pre-pandemic levels, (c) business expansions in the utilities, trade, financial, and hotels and restaurant sub-sectors, (d) development and launch of new products and services, and (e) brisker consumer spending on the back of higher remittances and inbound holiday travelers, including Overseas Filipino Workers (OFWs).

However, the current quarter’s CI was tempered by concerns of pessimistic firms over: (a) the negative economic impact of the ongoing conflicts in Gaza and Ukraine, (b) elevated inflation, and (c) higher interest rates.

Business sentiment across all sectors remains optimistic for Q4 2023. The positive CIs of the industry, wholesale and retail trade, construction and services sectors reflected continued optimism in the said sectors. In particular, optimism in the industry and wholesale and retail trade sectors improved but weakened in the construction and services sectors.

Outlook across all types of trading firms is generally more upbeat for Q4 2023. The business sentiment of domestic-oriented firms, exporters, and importers was more favorable, while that of the dual-activity firms was less buoyant.

Capacity utilization inches higher in Q4 2023. The average capacity utilization in the industry and construction sectors for Q4 2023 increased slightly to 70.9 percent from 70.5 percent in Q3 2023.

Firms expect financial conditions and access to credit to be tight in Q4 2023. The cash or liquidity positions of firms may remain tight as the financial condition index stayed negative at around -15 percent for Q4 2023. Moreover, businesses anticipated that their access to credit to be tighter for Q4 2023.

Businesses expect a weaker peso, and higher inflation and interest rates in Q4 2023 and Q1 2024. Businesses expect that the peso may depreciate against the U.S. dollar in Q4 2023 and Q1 2024 but may appreciate in the next 12 months.

Meanwhile, firms expect that the inflation and the peso borrowing rates may rise for all reference periods. Further, firms expect that inflation may remain above the upper end of the National Government’s 2–4 percent inflation target range for 2023-2024. In particular, businesses expect that the inflation rate for Q4 2023, Q1 2024, and the next 12 months may average at 6.4 percent, 6.3 percent, and 6.2 percent, respectively.

View Full Report here:

(https://www.bsp.gov.ph/Lists/Business%20Expectations%20Report/Attachments/21/BES_4qtr2023.pdf):