Business Sentiment Down But Consumers Upbeat

Business establishments are pessimistic about the rest of the year, while consumer sentiment is slightly upbeat, according to a survey conducted by the Bangko Sentral ng Pilipinas (BSP).

Consumer sentiment for Q3 2023 improved marginally as the overall confidence index (CI) turned slightly less negative at -9.6 percent from -10.5 percent in Q2 2023. I Photo: Takamorry Wikimedia Commons

The BSP reported that consumer sentiment for Q3 2023 improved marginally as the overall confidence index (CI) turned slightly less negative at -9.6 percent from -10.5 percent in Q2 2023.

This reflects a decrease in the percentage of pessimists, which outweighed the decrease in the percentage of optimists.

Consumers attributed their less pessimistic sentiment for Q3 2023 to: (a) the availability of more jobs and permanent employment, (b) higher income from wages/salaries, remittances, and other sources, and (c) additional working family members.

For the next quarter (Q4 2023), consumer sentiment also improved as the CI increased to 7.8 percent from 4.6 percent a quarter ago.

Meanwhile, consumer sentiment for the next 12 months was less optimistic as the CI declined to 18.9 percent from 20.5 percent in Q2 2023.

However, business confidence weakened in Q3 2023 as the overall confidence index (CI) declined to 35.8 percent from 40.8 percent in Q2 2023. This reflects a combined decrease in the percentage of optimists and an increase in the percentage of pessimists during the quarter.

Firms' less optimistic sentiment in the current quarter was attributed to: (a) a decline in sales and demand for goods and services mainly due to weather-related disruptions and other seasonal factors, (b) higher prices of raw materials and production costs, (c) elevated inflation and interest rates, and (d) peso depreciation.

However, business sentiment for Q4 2023 and the next 12 months was more upbeat, with the overall CIs increasing from the previous quarter's survey results. The CIs of the industry, services, and wholesale and retail trade sectors declined, while that of the construction sector increased.

Importers, exporters, dual-activity, and domestic-oriented firms were less optimistic in the current quarter. The average capacity utilization in the industry and construction sectors for Q3 2023 decreased slightly to 70.5 percent from 71 percent in Q2 2023.

Firms expected their financial condition and access to credit to be less tight for Q3 2023, as their corresponding indices became less negative.

Businesses expect the peso to appreciate against the U.S. dollar, and the peso borrowing rate may rise for the second semester of 2023 and the next 12 months. Meanwhile, firms expect that the inflation rate may rise for the second half of 2023 but may decline in the next 12 months.

Although businesses expect that inflation may remain above the upper end of the National Government’s 2–4 percent inflation target range for 2023-2024, inflation expectations among businesses may further ease in the next 12 months, as the number of respondents expecting lower inflation outnumbered those who said otherwise.

In particular, businesses are expecting that the inflation rate may average 5.9 percent for Q3 and Q4 2023 and 5.7 percent for the next 12 months. Consumer sentiment on buying big-ticket items for Q3 2023 was less pessimistic, as the CI turned less negative at -62.7 percent from -67.7 percent in Q2 2023.

The percentage of households with loans and savings increased in Q3 2023. In Q3 2023, 26.6 percent availed of a loan in the last 12 months, higher than the 24.8 percent recorded in Q2 2023. Meanwhile, the percentage of households with savings also rose to 32.8 percent from 30.2 percent in Q2 2023.

Consumers expect that interest rates may increase, and the peso may depreciate against the U.S. dollar for Q3 and Q4 2023 and the next 12 months. Furthermore, they anticipate that the unemployment rate may rise for the current quarter, remain steady for the next quarter, and decline for the next 12 months.

Meanwhile, households also expect that inflation may increase at a faster pace for all reference periods, as the number of respondents expecting higher inflation for said periods increased compared to the Q2 2023 survey results.

Specifically, consumers expect that the inflation rate may average 6.6 percent for the next 12 months, which is above the upper end of the National Government's inflation target range of 2 to 4 percent for 2023-2024.

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