Business, consumer optimism for Q3, next 12 months wane
Business and consumers in the Philippines turned less optimistic for the third quarter and the next 12 months because of the faster increases in commodity prices, higher interest rates, decline in sales due to weaker demand, and the expected adverse effects of El Niño.
In an online press briefing, Redentor Paolo Alegre Jr., senior director of the Department of Economic Statistics at the Bangko Sentral ng Pilipinas (BSP), said that based on the 2023 Second Quarter Business Expectations (BES) survey, the overall confidence index for the third quarter declined to 46.4 percent from 49 percent and for the next 12 months to 58.5 percent from 61.9 percent.
Alegre traced the less buoyant outlook for business in the third quarter to the seasonal downturn in production and sales during the rainy season; elevated inflation and high interest rates; lower demand for consumer and intermediate goods such as food supplements and plastic products as well as fewer construction projects.
Likewise, he attributed the less optimistic outlook for the next 12 months to concerns over high inflation and interest rate; expected decrease in sales due to weaker demand; perceived slow rollout of government infrastructure projects as well as the adverse effects of El Niño.
For the current quarter, Alegre said businesses are more upbeat as the overall confidence index improved to 40.8 percent from 34 percent amid the increase in sales and production due to stronger demand and services across all sectors.
He cited easing inflation, the continued recovery from the impact of the COVID pandemic, the full economic reopening with the lifting of strict quarantine and lockdown protocols as well as the seasonal uptick in demand for certain products and services during the summer months.
The results of the latest BES conducted between April 5 and May 24 covering 1,549 companies nationwide showed that businesses are expecting the peso to average 55.1 to $1 in the third quarter and to 55 to $1 for the next 12 months, while inflation is expected to hover at 7.1 percent and 6.9 percent, respectively.
According to Alegre, major business risks identified by the respondents for the second quarter include stiff competition, insufficient demand and high interest rate.
For consumer sentiment, Alegre said Filipinos are less confident for the third quarter as the overall confidence index declined to 4.6 percent from 7.5 percent and to 20.5 percent from 22.7 percent for the next 12 months after remaining pessimistic with a confidence index of -10.5 percent in the second quarter based on the 2023 Q2 Consumer Expectations Survey (CES).
“For both periods, consumers were concerned about the faster increase in the prices of goods and higher household expenses, lower income, fewer available jobs, and the effectiveness of policies and programs to generate employment, support economic growth, and control inflation,” Alegre said.
He said the spending outlook index of households on goods and services for the third quarter was less upbeat as the confidence index declined to 36.9 percent from 39.2 percent, suggesting that a moderation in consumer spending is expected.
Spending is still expected to grow but at a slower pace for the following consumer items: food, non-alcoholic and alcoholic beverages, and tobacco; clothing and footwear; house rent and furnishing; electricity; fuel; medical care; transportation; communication as well as restaurants and cafés. On the other hand, spending is expected to increase for water, education, recreation and culture as well as personal care and effects.
According to Alegre, consumers see inflation averaging 5.2 percent for the next 12 months, well above the BSP’s two to four percent target range, amid higher household spending, limited supply of goods and services, weakening of the peso and concerns over the effectiveness of government policies to fight inflation.
“Consumers anticipate that the interest rates may increase, the peso may depreciate against the US dollar, and the unemployment rate may decline for Q2 and Q3 2023 and the next 12 months,” Alegre said.
The latest CES covered 5,568 households nationwide surveyed between April 3 and 18.