MANILA, August 19, 2005
 (STAR) By Donabelle Gatdula - Businessmen are still optimistic about steady economic growth in the fourth quarter of the year, a survey taken by the Bangko Sentral ng Pilipinas (BSP) showed.

The survey, conducted among 893 firms across the country from July 1 to Aug. 5, indicated that the business sector in both the National Capital Region and areas outside the NCR still believes that economic conditions will improve in the fourth quarter as the overall diffusion index (DI) recorded a hefty and positive 18.1 percent.

The DI is computed as the percentage share of firms that answered in the affirmative less the percentage share of firms that answered negatively in a given indicator. A positive DI indicates a favorable view, except for the average inflation rate and the average peso-borrowing rate, where a positive DI indicates the opposite.

The BSP survey noted that the trade sector was most optimistic in the fourth quarter, with a DI of 22.3 percent, up from 19.5 percent in the previous survey.

The industry and services sectors remained positive at 16.6 percent and 16.1 percent, respectively, albeit down from the previous surveys’ 19 percent and 28.7 percent. On the other hand, the DI of the construction survey dropped considerably to 12.2 percent from 36.1 percent.

The respondents in the survey attributed the robust outlook in the last quarter of 2005 to increased demand, higher domestic production and a better political climate.

Respondent firms, the BSP said, expect that volume sales and production will pick up by the last quarter of the year due to Christmas-related demand, the harvest season, increased remittances from overseas Filipino workers (OFWs) and expectations of a better political climate.

The volume of business activities for the fourth quarter is expected to remain strong, as shown by a robust index of 27.5 percent, though slightly lower than the 28.5 percent DI reported in the previous survey.

"This favorable outlook in the fourth quarter will follow the expected slowdown in the third quarter as the volume of business activity index of 0.7 percent declines from 19.2 percent in the previous survey. The slowdown in business activity is expected more in NCR than in areas outside NCR," it said.

With the anticipated pick-up in economic activity during the fourth quarter, the employment outlook index increased slightly to 7.3 percent from the previous survey’s 6.5 percent. The proportion of respondents that indicated no expansion plans for the fourth quarter remained largely steady at 69.2 percent from last quarter’s 68.4 percent.

Despite the positive outlook for the fourth quarter, however, the business sector was less optimistic about growth prospects in the third quarter.

"Business outlook in all sectors is weaker in the third quarter. DI dropped to a low -10.4 percent from 12.9 percent in the previous quarter," the survey said.

NCR respondents expected unfavorable business conditions with index lower at -13 percent from 12.3 percent in the previous survey. On the other hand, business firms outside NCR were less optimistic with the DI at -5.6 percent.

By sector, industry recorded the least pessimistic outlook in the third quarter, posting the highest index among the sectors at -2.7 percent (from 17.9 percent in the second quarter).

Services sector’s DI was posted at -13.8 percent, down from 19.4 percent and trade at -13.9 percent from two percent.

The DI of the construction sector dropped significantly to -40.9 percent from 4.8 percent in the previous survey following the onset of the rainy season, which is expected to slow down construction activities during the quarter.

According to the survey, the drop in business optimism for the third quarter was caused by political noise, oil price increases and low seasonal demand.

The respondents also recognized a number of risks to business expansion in the near term.

Specifically, respondents cited the current political noise, the upward surge in oil prices and the fiscal deficit as the biggest risks which could hamper business expansion in the country.

In addition, stiff competition and insufficient demand were seen by most of the respondents as major factors that could constrain business operations in the third quarter of 2005.

Other factors, such as unclear economic laws on taxation, financial problems and high interest rates were also seen as factors which limit business activities.

The BSP said higher interest rates, rising inflation and a weaker peso are anticipated by survey respondents in the third and fourth quarters of 2005.

Of the 893 firms surveyed, some 460 companies were located in Metro Manila NCR and the rest outside Metro Manila — 36 in the Ilocos Region, 108 in Central Luzon, 123 in Southern Tagalog, 105 in Central Visayas and 61 in Southern Mindanao).

Reported by: Sol Jose Vanzi

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