With high inflation and a depreciated peso, Filipino businesses are not as optimistic as before during the holiday months of the fourth quarter, and the weak sentiment extends until 2023, according to a central bank survey.

The Bangko Sentral ng Pilipinas’ (BSP) fourth quarter Business Expectations Survey (BES) said the “less optimistic” or weak business sentiment was due to the following: higher inflation or the faster increase in prices of consumer goods and services; peso depreciation; decline in sales and demand; rising costs of production inputs such raw materials and fuel; and higher interest rates.

The BES, which was conducted Oct. 4 until Nov. 11, showed a decline in the overall confidence index (CI) for the fourth quarter of 23.9 percent from 26.1 percent in the previous or third quarter 2022.

There was lower CI because of the increase in the percentage of pessimists which outweighed the increase in the percentage of optimists, explained the BSP.

The BES also described as less upbeat the business sentiment for the first quarter 2023 or a CI of 31.3 percent from 43.9 percent in the previous quarter.

“For the next 12 months, business confidence was likewise less optimistic,” noted the BSP, citing concerns over higher inflation, weaker peso which is expected to depreciate again, and interest rates that are likewise seen to further increase. Other concerns include prices of raw materials that are expected to increase as well as labor and fuel, while the volume of sales and demand for consumer commodities could further decline.

The overall CI for the next 12 months decreased for the third consecutive quarter to 46.2 percent versus 57.7 percent in the third quarter this year.

Meantime, the BSP said businesses expect financial condition and access to credit to be tighter in the fourth quarter. The CI declined further to -23.5 percent from -21.2 percent previously, and -4.2 percent from -2.9 percent, respectively.

The surveyed firms pointed to the weaker peso, higher borrowing and inflation rates as factors for the reduced business confidence.

Since this has been communicated by the BSP as well, businesses expect inflation rates to continue to increase in the fourth quarter and in the first quarter of 2023. On average, they expect inflation to settle at 6.2 percent in the fourth quarter. For the first 11 months, actual inflation has averaged at 5.6 percent. By the next quarter, inflation is projected to settle at 6.1 percent average and 5.9 percent for the next 12 months.

The business sentiment by sector is “largely more optimistic” in the fourth quarter except for the services sector. “The less positive outlook of the services sector outweighed the more optimistic outlook of the construction, industry, and wholesale and retail trade sectors, which in turn translated to a lower overall CI,” said the BSP.

The business outlook across all types of trading firms is also mixed. “Across different types of trading firms (exporter, importer, dual-activity and domestic-oriented), business sentiment was mixed in Q4 2022. Importers and dual-activity firms were less optimistic, while exporters and domestic-oriented firms were more upbeat in the current quarter,” said the BSP.

Capacity utilization also posted a lower a CI in the fourth quarter of 72.1 percent in from 72.7 percent in the previous quarter.

The latest BES tapped 1,501 firms nationwide, of which 584 are located in the National Capital Region (NCR) and 917 firms are outside of the NCR which included 16 regions.