Why are Businesses Optimistic About the Next 12 Months But Consumers are Not?
Post-holiday blues may have struck the business community in the first quarter of the year, but sentiment improved in the second quarter until the rest of 2024.
“The first quarter 2024 Confidence Index (CI) turned less buoyant due mainly to the firms’ concerns over the post-holiday decline in demand for goods and services and slowdown in business activities; persistent inflationary pressures stemming from higher food and oil prices and its impact on the economy; stiff competition; and adverse effects of a strong El Niño event in 2024 on the agriculture sector,” the latest Business Expectations Survey (BES) of the Bangko Sentral ng Pilipinas said.
However, the sector is more optimistic about the second quarter of the year and the next 12 months as “overall CI increased to 60.8 percent from 54 percent in the fourth quarter 2023 survey result,” said the BSP. “The firms’ more buoyant outlook for the next 12 months was attributed primarily to their expectations of sustained strong demand for products and services, continued favorable economic conditions, lower inflation, business expansions, and lower interest rates.”
The first quarter 2024 BES was conducted from January 5 to March 12, 2024 among 1,525 firms nationwide. They consisted of 581 companies in the National Capital Region (NCR) and 944 firms in areas outside the NCR.
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Households concerned with high prices
In contrast, while Filipino consumers were upbeat about the economy and their family’s financial situation in the first quarter of the year, they were less confident about the second quarter of the year and the next 12 months, mainly due to forecasts of higher consumer prices.
This doesn’t mean they’re postponing their purchases of large-ticket items like real property though, with their higher savings and the increased availability of consumer loans, according to a separate BSP Consumer Expectations Survey (CES).
“The consumer sentiment in the Philippines improved in the first quarter 2024 as the overall CI became less negative at -10.9 percent from -19 percent in the fourth quarter 2023,” the report said, as Filipinos expected more and higher income, additional jobs and permanent work, and more family members are joining the workforce.
But they turned pessimistic in the second quarter of 2024 and the next 12 months, from February 2024 to January 2025, “as the CIs declined to 2.7 percent and 13.4 percent from 5.6 percent and 15 percent, respectively, in the fourth quarter 2023 survey,” said the BSP. It attributed the consumers’ pessimistic outlook for the rest of the year to “their anticipation of a faster increase in the prices of goods, fewer available jobs, and lower income.”
Most consumers see the inflation rate averaging 5.3 percent in the next 12 months, way above government’s inflation target of two to four percent for 2024 and 2025, as per the CES.
Even BSP is wary of faster inflation
The first quarter 2024 CES was conducted January 19 to 31, 2024 of 5,340 households nationwide. Of the total respondents, 2,577 households are from the NCR and 2,630 households live in areas outside the NCR. The high-income group (family income more than P30,000 a month), comprised the largest percentage of respondents at 38.1 percent, followed by the middle-income group (P10,000-P29,999 monthly income) at 38 percent, and the low-income group (less than P10,000 a month) at 23.8 percent.
On April 5, the Philippine Statistics Authority (PSA) reported a 3.7-percent headline inflation rate for March, speeding up from the 3.4 percent rate in February. It attributed the inflation rate in March to higher prices of food and drinks, transportation fares, and hotel and restaurant prices, compared to February. For the first quarter of the year, headline inflation averaged 3.3 percent.
While the latest inflation rate remained within government’s target range, even BSP Gov. Eli Remolona acknowledged in a news conference on Monday: “The risks to the inflation outlook continue to lean toward the upside. Possible further price pressures are linked mainly to higher transport charges, elevated food prices, higher electricity rates, and global oil prices. Potential minimum wage adjustments could also give rise to second-round effects.”
As Filipinos are huge consumers of rice, any price increase in the commodity immediately impacts on their household food costs, and therefore, their general inflation outlook. According to the PSA, regular-milled rice reached P51.11 per kilo in March from P39.90 per kilo in the same month last year. Similarly, well-milled rice was at P56.44 per kilo in March 2024, from P44.23 per kilo the year before. Special rice prices hit P64.75 per kilo last month from P54 per kilo in March 2023.
Keen on buying properties
“The spending outlook index of households on goods and services for the second 2024 was less upbeat as the CI declined to 41.3 percent from 46.7 percent in the fourth quarter 2023 survey results, which suggests that the pace of consumer spending may moderate in the second quarter of 2024,” according to the CES.
They are still keen on buying big-ticket items though: “In particular, buying intentions for the next 12 months was less pessimistic for houses and lots. Conversely, buying intentions was more pessimistic for consumer durables, while it remained pessimistic for motor vehicles.”
Although their purses are tight, Filipinos were able to borrow in the last 12 months, at some 25 percent of households, up from the 23 percent in the fourth quarter of 2023. “Further, the percentage of households with savings increased to 33.5 percent in the first quarter 2024, from 29.1 percent in the fourth quarter 2023,” said the BSP.
Meanwhile, businesses in general see the peso appreciating against the US dollar, and the inflation and peso borrowing rates rising in the first half of 2024 and the next 12 months. In particular, businesses project that the inflation rate may average at five percent in the first half of 2024 and the next 12 months, higher than the two to four percent target inflation rate of the national government.
More hires, capacity expansion
The BES also showed the outlook of businesses across all sectors and employment size categories (small-, medium, large) was more upbeat about the next 12 months. Firms in the industry, services, and wholesale and retail trade sectors were optimistic about continued post-pandemic economic recovery, improved business conditions, and lower year-ahead inflation and interest rates. However, “firms in the construction sector cited the projected slower growth of their industry as the reason for their slightly less upbeat business sentiment.”
Due to an anticipated increase in demand for products and services, the BES indicated that businesses, in general, may hire more workers, with the employment outlook index for the second quarter 2024 and the next 12 months rising to 23.5 percent and 33.4 percent (from 19.3 percent and 29.3 percent in the fourth quarter 2023), respectively.
Industrial firms, in particular, may expand their product lines or production capacity in the second quarter and the 12 months, increasing to 22 percent and 28.8 percent (from 21.2 percent and 25.7 percent in the fourth quarter 2023 survey), respectively.
“The increase in the percentage of firms with expansion plans for the second quarter 2024 and the next 12 months was driven by the higher percentage of firms in the manufacturing sub-sector, which outweighed the decline in the percentage of firms in the mining and quarrying, electricity, gas and water, and agriculture, fishery and forestry sub-sectors,” said the BSP.
