Business Confidence Index falls to lowest levels after 43 consecutive quarters

Business confidence turns negative in Q3

MANILA – Business confidence on the economy dipped to negative in Q3 2020, long after posting 43 quarters of positive confidence (from Q3 2009 to Q1 2020), as the overall confidence index (CI0 decreased to -5.3 percent from 22.3% in Q1 2020.

According to the Bangko Sentral ng Pilipinas statement, the respondents’ pessimism for Q3 this year was due to the impact on the business outlook of the COVID-19 pandemic and community quarantine restrictions, decrease in orders, sales and income, slowdown or temporary shutdown in business operations, and concerns over government policies, primarily on the perceived insufficient mitigation measures to counter the impact of COVID-19.

Weak business sentiment continued for Q4 2020 with the next quarter CI declining to 16.8 percent from 42.3 percent in Q1 2020. The respondents doubtful outlook for Q4 was due to the expectations of the continuing negative effects of COVID-19 pandemic affected the volume of orders, sales and income, and overall economic activity, in general. The business outlook on the country’s economy was less upbeat for the next 12 months as the CI declined to 37.5 percent from 55.8 percent in Q1 2020 survey results because of the earlier cited reasons.

The respondents’ pessimistic sentiment was seen across different types of trading firms from exporters, importers, dual-activity and domestic-oriented, though in varying degrees. Importers and domestic-oriented firms were most pessimistic about the business environment for Q3 2020 while expoertes and dual-activity respondent firms were less optimistic.

For the year’s last quarter and the next 12 months, the Confidence Index across different types of respondent trading firms generally indicated continuing optimism but the indices were lower than the Q1 2020 survey results.

For Q3 2020, business sentiment for the industry and construction sectors was less upbeat, while for the services and wholesale and retail trade sectors, sentiment turned pessimistic.

According to the BSP statement, for Q4 2020, business confidence declined notwithstanding remaining positive across sectors. The sentiment of businesses from the electricity, gas and water (EGW) and mining and quarrying sub-sectors turned more optimistic. For the EGW, firms’ renewed optimism comes from the anticipated increase in demand for utility services because of the work-from-home arrangement, the introduction of new and enhanced business strategies and processes as well as expansion of business and new product lines to cope with the new normal. For mining and quarrying, respondent firms anticipated greater profit due to continued increase in the prices of gold and silver.

For the coming year, business confidence across sectors were less favorable as the outlook of respondent firms from mining and quarrying and agriculture, fishery and forestry sub-sectors was more optimistic on expectations ship loading operations of mining companies will resume, high demand for poultry products and increased volume of crop production.

Business operations turned negative for Q3 as compared with their sentiment in Q1. Firms across sectors believe there will be weaker volume of business activity and volume of total orders booked. For Q4 2020 and the next 12 months, the outlook of the overall business activity was less upbeat. More layoffs will take place in Q4 2020 and the best 12 months.

Sentiment on financial conditions slipped to -47 percent, and firms were of the view that their access to credit will remain tight with the credit access index dipping to -15.5 percent for Q3 2020. These are the lowest index levels since the beginning of the nationwide survey in Q4 2006. More respondents reported tight financial conditions and difficulties in accessing credit than those that said otherwise.

Businessmen expect the peso to further appreciate and interest rates to decline but the inflation to increase for the year’s second half. They anticipate the peso to appreciate and inflation and interest rates to rise for the next year. Business expect that the rate of increase in commodity prices will generally remain within the government’s 2 to 4 percent inflation target range for 2020 and 2021.

The Q3 2020 BES was made from July 8 to September 10,2020 with 1,517 forms nationwide. Samples were taken from the Top 7,000 Corporations ranked according to their total assets in 2016 from the Bureau van Dijk (BvD) database with 586 companies from the National Capital Region while 931 were from Areas Outside NCR from 16 regions. (Melo M. Acuña)