MANILA, February 17, 2006
 (STAR) By Des Ferriols - Businessmen are optimistic about their first and second quarter prospects this year, but confidence still falters due to stiff competition and an expected slowdown in demand due to higher taxes.

The latest Business Expectations Survey (BES) conducted by the Bangko Sentral ng Pilipinas (BSP) revealed that positive sentiments picked up dramatically compared to last year when businessmen were asked about their economic and business outlook for the first and second quarter of the year.

Culled from over 900 business executives picked from the top 5000 corporations in the country, the BSP reported yesterday that the BES revealed the highest positive diffusion rates since the survey began in 2002.

According to the BES results, confidence only faltered due to worries over stiff competition, anticipation of a slowdown in demand and the impact of the increase in tax rates on domestic sales.

According to the BES survey, the number of optimistic respondents outnumbered pessimistic respondents when asked about their business and economic prospects for the first and second quarter.

On closer inspection, the BSP said there was a buildup of optimism towards the second quarter. The index was up at 23.4 percent for the first quarter and went dramatically higher to 37.2 percent when asked about their expectations for the second quarter.

"Businessmen are more optimistic because they anticipate further appreciation of the peso, lower interest rates and an improved government fiscal position," said Iluminada T. Sicat, director of the BSPís Department of Economic Research.

According to Sicat, business expectations rose even higher for the second quarter because businessmen were expecting a surge in domestic consumption ahead of the resumption of classes in June.

Sicat said that the BES was conducted between Jan. 3 to Feb. 3, shortly before the countryís credit rating outlook was upgraded by Fitch Ratings and Standard & Poorís.

"If we had conducted the survey after that, just imagine how much higher these numbers would have been," said Sicat.

The BES revealed that the services sector was the most upbeat, propelled mainly by the surge in the business process outsourcing (BPO) segment that also spurred significant activity in the real estate sector.

"People are expecting more BPOs to open up so the development of office spaces for these businesses have picked up dramatically," Sicat said.

Industry was also upbeat, with the index going up to 29.6 percent compared to two percent when they were asked in 2005. Construction and trade, on the other hand, reversed its general pessimism last year and went positive at 25.3 percent and 8.4 percent, respectively.

According to the BES report, however, businessmen were particularly worried about the increase in oil prices, surging prices of raw materials, inflation and slowdown in market demand aggravated by increased competition.

Like most government planners, however, businessmen also count on remittances from overseas Filipino workers (OFWs) to continue supporting the countryís economy and somewhat reduce risk perceptions.

Looking forward, the BES results indicated that business expectation for the second quarter of 2006 would be affected by these very same factors, especially oil prices, continuing political noise, stiffer competition and insufficient demand.

Nevertheless, the BES indicated that businessmen were expecting a rise in the employment rate in the first quarter. Last year, when asked the same question, respondents were predominantly grim.

Chief News Editor: Sol Jose Vanzi

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