Business sentiment weakened in Q3 2022 as the overall confidence index (CI) declined to 26.1 percent from 35.4 percent in Q2 2022. The lower index resulted from the combined effects of a decrease in the percentage of optimists and an increase in the percentage of pessimists.
The respondents’ less optimistic sentiment in Q3 2022 was attributed to: (a) higher inflation (i.e., faster rise in prices of consumer goods, services, raw materials and production costs), (b) rising fuel prices, (c) decline in sales and demand, (d) peso depreciation and (e) the continuing public health threat of COVID-19.
For the next quarter, the business sentiment weakened for the second consecutive quarter as the overall CI decreased to 43.9 percent from 46.4 percent a quarter ago.
For the next 12 months, the business sentiment also declined further as the overall CI decreased to 57.7 percent from the previous quarter’s survey result of 59.9 percent.
Outlook across all types of trading firms is generally less upbeat in Q3 2022
By type of trading firm, a less favorable outlook was observed among exporters, importers and domestic-oriented firms as these types of trading firms registered lower CIs in Q3 2022 from a quarter ago. Conversely, a more optimistic outlook was noted for dual-activity firms.
For Q4 2022, the outlook was less buoyant for importers and exporters, more optimistic for domestic-oriented firms and steady for dual-activity firms. Meanwhile, the outlook for the next 12 months was less upbeat for importers, more favorable for exporters and dual-activity firms but unchanged for domestic-oriented firms.
Business sentiment by sector is less optimistic in Q3 2022
The CI across all sectors moderated in Q3 2022 indicating that business sentiment of firms in the construction, services, wholesale and retail trade and the industry sectors were less positive compared to the previous quarter’s survey results. Meanwhile, the outlook for Q4 2022 of the respondent firms was less optimistic across sectors, except for those in the services sector whose outlook turned more favorable. For the next 12 months, the less upbeat outlook of firms in the industry and services sectors outweighed the more optimistic view of businesses in the construction and wholesale and retail trade sectors.
Firms’ outlook on their business operations is largely less optimistic in Q3 2022
Consistent with the national trend, the outlook of firms on their own business operations, based on the volume of business activity and total orders booked, was less optimistic in Q3 2022. Meanwhile, the outlook on the volume of business activity was steady for Q4 2022 but less upbeat for the next 12 months.
Capacity utilization is unchanged in Q3 2022
The average capacity utilization of the industry and construction sectors was unchanged at 72.7 percent in Q3 2022. In particular, the average capacity utilization of the industry sector in Q3 2022 slightly increased to 72.2 percent (from 71.8 percent in Q2 2022).
Firms expect financial condition and access to credit to be tighter in Q3 2022
Firms expected that their financial condition and access to credit will be tighter in Q3 2022 as their corresponding indices declined further to -21.2 percent (from -18.2 percent) and -2.9 percent (from
-0.4 percent), respectively.
For Q4 2022, the percentage of firms that look forward to hiring more people decreases, but the percentage of firms with expansion plans increases
The employment outlook index declined to 22.7 percent for Q4 2022 (from 25.4 percent in the Q2 2022 survey results) and was steady at 30 percent (from 30.7 percent) for the next 12 months. The lower reading in Q3 2022 suggests that hiring intentions may turn less favorable for the next quarter, while employment prospects for the next 12 months remain optimistic. On one hand, the percentage of businesses in the industry sector with expansion plans for Q4 2022 increased to 23.4 percent (from 17.9 percent in the Q2 2022 survey results). On the other hand, the percentage of industry firms with expansion plans for the next 12 months decreased to 23.2 percent (from 24.4 percent).
Firms expect a weak peso, and higher borrowing and inflation rates in Q3 2022 and in the near term
Businesses expected the peso may continue to depreciate against the U.S. dollar and the peso borrowing and inflation rates may rise in Q3 and Q4 2022, and the next 12 months. Further, businesses expected that inflation may breach the upper end of the government’s 2–4 percent inflation target range for 2022-2023. In particular, firms were expecting that inflation may settle at 5.6 percent in Q3 2022 and Q4 2022 and at 5.4 percent for the next 12 months.
The Q3 2022 BES was conducted during the period 6 July – 15 August 2022. There were 1,504 firms surveyed nationwide, consisting of 584 companies in the NCR and 920 firms in AONCR, covering all 16 regions nationwide. Samples were drawn from the Top 7,000 Corporations ranked based on total assets in 2016 from the Bureau van Dijk (BvD) database. The nationwide survey response rate for this quarter was higher at 58.8 percent (from 51.7 percent in Q2 2022). The response rate was higher for both the NCR at 64 percent (from 50.8 percent) and AONCR at 55.4 percent (from 52.3 percent).