Business confidence turns optimistic for Q4 2020

Business confidence on the economy improved for Q4 2020 as the overall confidence index (CI) reverted to the positive territory at 10.6 percent from -5.3 percent in Q3 2020.

The positive reading indicates that respondents with optimistic views increased and outnumbered those with pessimistic views.

The respondents’ optimism for Q4 2020 was attributed to the following: (a) reopening of businesses and adapting to the “new normal,” (b) easing of community quarantines nationwide, (c) seasonal factors such as uptick in demand during the holiday season and start of milling season, and (d) increase in volume of sales and orders.

Improved business sentiment persisted for Q1 2021, with the next quarter CI rising to 37.4 percent from the previous quarter’s survey result of 16.8 percent.

Respondents’ more buoyant outlook for Q1 2021 was associated mainly with expectations of: a) reopening of firms and adapting to the “new normal”, (b) gradual recovery from the coronavirus disease (COVID-19) pandemic, particularly with the anticipated availability of the vaccine, (c) relaxing the quarantine restrictions, and (d) rise in sales and orders. Similarly, the business outlook on the country’s economy was more optimistic for the next 12 months as the CI rose to 57.7 percent from the Q3 2020 survey result of 37.5 percent due to the aforementioned reasons.

 

 

OUTLOOK ACROSS TYPES

Favorable sentiment prevailed across the different types of trading firms (i.e., exporter, importer, dual-activity and domestic-oriented), but at varying degrees. Importers and domestic-oriented firms turned optimistic on the business environment for Q4 2020, while exporters became more optimistic and dual-activity respondent firms were less upbeat.

For Q1 2021 and the next 12 months, the different types of respondent trading firms indicated stronger optimism as CIs for the said periods registered higher levels than the Q3 2020 survey.

 

SENTIMENT ACROSS SECTORS

For Q4 2020, the business sentiment of the industry and construction sectors was more upbeat, while the sentiment of the services and wholesale and retail trade sectors turned optimistic.

For Q1 2021, the business confidence indices rose across sectors as they expected people to adjust to the “new normal” and for the economy to recover from the pandemic. Further, increase in sales/demand, new projects, and new product lines were also cited as reasons for the more upbeat sentiment across sectors.

For the next 12 months, the business confidence across sectors was more favorable due to their expectation of the availability of the vaccine against COVID-19, which they perceived can help improve the current economic situation of the country, among the other aforementioned reasons.

 

OPTIMISTIC  

Consistent with the national trend, the outlook of firms on their own business operations turned optimistic for Q4 2020 from a pessimistic sentiment in Q3 2020. Moreover, the sentiment of firms on the volume of business activity and total orders booked improved across sectors. For Q1 2021 and the next
12 months, the outlook on the volume of business activity was more upbeat across sectors.

 

OUTLOOK ON EMPLOYMENT

The employment outlook index returned to the positive territory for Q1 2021 and the next 12 months, suggesting that firms are looking forward to hiring people in Q1 2021 and the next 12 months.

 

CAPACITY UTILIZATION  

The average capacity utilization in the industry and construction sectors for Q4 2020 was higher at 67.9 percent (from 66.2 percent in Q3 2020). Relative to the Q3 2020 survey results, the percentage of businesses with expansion plans in the industry sector rose for both Q1 2021 and the next 12 months.

 

FINANCIAL CONDITIONS, ACCESS TO CREDIT  

The financial conditions index improved slightly albeit remaining in the negative territory at -43.4 percent for Q4 2020 from -47 percent in the previous quarter. Further, firms indicated that their access to credit in Q4 2020 was constrained as the credit access index remained negative from -15.5 percent in Q3 2020 to
-12.2 percent for Q4 2020. The negative index means that respondents who reported difficulties in accessing credit outnumbered those that said otherwise, although the number of pessimists declined.

 

PESO, INTEREST RATE, AND INFLATION

The survey results showed that businesses expect the peso to appreciate, interest rates to decline, but inflation to increase for Q4 2020. Firms anticipated the peso to appreciate for the next quarter but depreciate for the next 12 months. Moreover, respondents indicated that inflation and interest rates were likely to rise for the next quarter and the next 12 months. However, inflationary pressures may ease in both periods as the number of respondents that expected higher inflation declined vis-à-vis the Q3 2020 survey results.

The Q4 2020 BES was conducted during the period 6 October–24 November 2020. There were 1,513 firms surveyed nationwide. Samples were drawn from the Top 7,000 Corporations ranked based on total assets in 2016 from the Bureau van Dijk (BvD) database, consisting of 585 companies in NCR and 928 firms in AONCR, covering all 16 regions nationwide.

The nationwide survey response rate for this quarter was slightly higher at 64.8 percent (from 64.7 percent in the Q3 2020). The response rate was marginally lower for NCR at 65.3 percent (from 65.5 percent in Q3 2020) but a little higher for AONCR at 64.5 percent (from 64.2 percent in Q3 2020).