MANILA, Philippines – After sentiment hit an all-time high in the second quarter, businesses turned less bullish in the succeeding three-month period on the back of the seasonal drop in demand, peso volatility and concern over the impact of the US Federal Reserve’s looming exit from its massive bond buying program, the Bangko Sentral ng Pilipinas (BSP) said yesterday.
In its Business Expectations Survey (BES), the BSP said the overall confidence index for the third quarter eased to 42.8 percent from record high of 54.9 percent in the second quarter. Despite the slight drop, the index for the fourth quarter climbed to a new high of 60 percent. The index is the difference between the percentage of firms that answered in the positive and those in the negative.
“Basically, the general story is the business sentiment of our respondents continue to be broadly bullish,” BSP Deputy Governor Diwa C. Guinigundo said.
“There was some slight decline in the confidence index but in general, it remains in the positive story so the bullishness that we saw in the first quarter and second quarter continued in the third quarter,” he added.
“Respondents attributed their less buoyant outlook to expectations of lower seasonal demand during the quarter, stiffer competition, particularly from products from China, and volatility in the movements of the peso” Teresita B. Deveza, deputy director of BSP’s Department of Economic Statistics, said.
“Uncertainties in the global economy such as the impact of the anticipated exit from quantitative easing in the US also contributed to their lower optimism,” she added.
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The sentiment of Philippine firms mirrored the same weaker outlook in Hong Kong, South Korea and India. However, it was the reverse of the more bullish sentiment seen in the US, Canada, Germany and New Zealand.
Deveza attributed the record high outlook for the fourth quarter to expectations of brisker demand during the Christmas season which could lead to bigger orders and projects, higher volume of production and expansions of businessess and product lines.
“The prevailing favorable macroeconomic conditions such as low interest rates, manageable inflation, steady growth of overseas Filipinos’ remittances increase in investment inflows as well as the recent investment-grade credit rating from three rating agencies, namely, Fitch Ratings, Standard & Poor’s and Japan Credit Rating Agency also boosted confidence for the fourth quarter,” Deveza said.
In the coming quarters, respondents expect inflation to settle at the lower end of the BSP’s three to five percent target range for the year.
Businesses expect inflation to average 3.2 percent in the third quarter and 3.3 percent in the fourth quarter.