Business Confidence Turns Pessimistic for Q3 2020; Less Optimistic for Q4 2020 and the Next 12 Months

Business confidence on the economy turned negative in Q3 2020, after posting 43 quarters of positive confidence (from Q3 2009 to Q1 2020), as the overall confidence index (CI) decreased to -5.3 percent from 22.3 percent in Q1 2020.

 

The respondents’ pessimism for Q3 2020 was attributed to: (a) the impact on the business outlook of the coronavirus disease (COVID-19) pandemic and community quarantine restrictions, (b) decrease in orders, sales and income, (c) slowdown/temporary shutdown in business operations, and (d) concerns over government policies, primarily on the perceived insufficient mitigation measures to counter the impact of COVID-19.

 

Weak business sentiment persisted for Q4 2020, with the next quarter CI declining to 16.8 percent from 42.3 percent in Q1 2020. Respondents’ less buoyant outlook for Q4 2020 was associated mainly with expectations of the continuing negative effects of the COVID-19 pandemic affecting the volume of orders, sales, and income, and overall economic activity, in general. Similarly, 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 due to the aforementioned reasons.

 

Confidence across different types of businesses wanes for Q3 2020, and is less buoyant for the near term

 

Respondents’ sentiment turned pessimistic across different types of trading firms (i.e., exporter, importer, dual-activity and domestic-oriented), but at varying degrees. Importers and domestic-oriented firms were most pessimistic about the business environment for Q3 2020, while exporters and dual-activity respondent firms were less optimistic.

 

For Q4 2020 and the next 12 months, the CIs across the different types of respondent trading firms generally indicated continuing optimism, but the indices were lower than the Q1 2020 survey results.

 

Business sentiment weakens across sectors for Q3 2020, but remains positive for the near term

 

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.

 

For Q4 2020, business confidence declined albeit remaining positive across sectors. However, 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 stemmed from anticipated increase in demand for utility services brought about by the work from home arrangement, the introduction of new and enhanced business strategies and processes, and expansion of businesses and new product lines to cope with the new normal. Meanwhile, for mining and quarrying, respondent firms anticipated greater profit due to continued increase in the prices of gold and silver.

 

For the next 12 months, business confidence across sectors was less favorable. Outlook of respondent firms from the 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.

 

Firms’ outlook about their business operations is pessimistic for Q3 2020

 

Consistent with the national trend, business outlook of firms about their own operations turned negative for Q3 2020 as compared with their sentiment in Q1 2020. Firms across sectors anticipate weaker volume of business activity and volume of total orders booked. For Q4 2020 and the next 12 months, the outlook on the overall volume of business activity was less upbeat.

 

Outlook on employment turns negative

 

The employment outlook index turned negative for Q4 2020 and the next 12 months, suggesting that more firms may lay off workers in Q4 2020 and the next 12 months.

 

Capacity utilization decreases for Q3 2020, and expansion plans decline for Q4 2020

 

The average capacity utilization in the industry and construction sectors for Q3 2020 was lower at 66.2 percent (from 74.9 percent in Q1 2020). Relative to the Q1 2020 survey results, the percentage of businesses with expansion plans in the industry sector declined for Q4 2020.

 

Firms expect financial conditions and access to credit to be tight for Q3 2020

 

Sentiment on financial conditions slipped to -47 percent, and firms were of the view that their access to credit is tight with the credit access index dipping to -15.5 percent for Q3 2020. Notably, these are the lowest index levels since the start of the nationwide survey in Q4 2006. The negative index means that more respondents reported tight financial conditions and difficulties in accessing credit than those that said otherwise.

 

Firms expect a stronger peso and lower interest rate, but higher inflation rate for Q3 2020

 

The survey results showed that businesses expect the peso to appreciate, interest rates to decline, but inflation to increase for the Q3 and Q4 2020. Meanwhile, respondents anticipated the peso to appreciate and inflation and interest rates to rise for the next 12 months. Further, businesses 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.

 

About the Survey

 

The Q3 2020 BES was conducted during the period 8 July–10 September 2020. There were 1,517 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 586 companies in NCR and 931 firms in AONCR, covering all 16 regions nationwide. The nationwide survey response rate for this quarter was lower at 64.7 percent (from 72.5 percent in the Q1 2020). The response rate was higher for NCR at 65.5 percent (from 63 percent in Q1 2020) and lower for AONCR at 64.2 percent (from 78.3 percent in Q1 2020).

 

Source: Bangko Sentral ng Pilipinas (BSP)