By LEE C. CHIPONGIAN
The local business sector remains optimistic about the economic outlook for the first two quarters of the year, driven by upbeat business sentiments in areas outside of the National Capital Region, despite persistent concerns of political uncertainty and peso-dollar volatility ahead of the May 10 balloting.
The Business Expectations Survey, a central bank initiative, indicated in its latest report yesterday that business sentiments are still on the positive side and that economic growth in the first six months would be driven by increased consumer spending in the run up to the balloting, especially in the NCR areas where political campaigns are centered.
However because of the political noise, the business pulse within the NCR areas seem less enthusiastic about prospects for the current year while companies outside the NCR are generally more bullish. "Businessmen outside of the NCR are experiencing credit access tightening (as a result of the positive outlook) because they want funding for their planned expansions this year, while NCR companies are more cautious," according to BSP managing director Diwa Guinigundo.
The BES covered the country’s top 5,000 corporations, which are mostly located in the NCR or 80 percent of total industries weighting while 30 percent have their operations outside of the capital.
While there are recognized downside risks, such as the foreign exchange instability, which climbed to a record low of P56.30 Friday against the US dollar, Bangko Sentral ng Pilipinas (BSP) governor Rafael Buenaventura said the monetary authorities are prepared to implement policies to contain these risks.
"What’s important is that despite these problems and the political noise businessmen are still optimistic and while people are increasingly nervous, we still know that we will revert back to normalcy once elections are over and done with," Buenaventura said. BSP is sensitive to the BES as it monitors price volatility in balancing the exchange and interest rates to contain inflation.
With regard to the perceived tightening of bank financing outside of the NCR, Buenaventura said this is a concern and he will take this issue up with local banks. "We want to know why they are tightening credits and why they are not responding to the expansion calls outside of the NCR. These are opportunities and we don’t know why they are not doing anything to explore it."
Based on the latest survey, business sentiment remains optimistic in the first and second quarters of 2004 as indicated by the positive diffusion indices (DI) for the overall business outlook. For these two quarters, the overall DIs were recorded at 26 percent and 25.2 percent, respectively. DI is computed as the percentage share of firms that answered in the affirmative minus negative in a given indicator. A positive DI indicates a favorable view. The BES was conducted in the fourth quarter of 2003 and is now expanded to include regions 1, 7 and 11. It had a 58 percent response rate, better than previous.
Businessmen said the positive outlook is based on the expected increase in consumer demand during the election period. However the resulting political uncertainty, stiff competition and the weakening of the peso were identified to affect negatively business activity.
