Business Sentiment Weakens in Q4 2022 and 2023

Business sentiment turned less optimistic in Q4 2022 as the overall confidence index (CI) declined for the second consecutive quarter to 23.9 percent from 26.1 percent in Q3 2022. The lower index resulted from the increase in the percentage of pessimists, outweighing the increase in the percentage of optimists.

The respondents’ less optimistic sentiment in Q4 2022 was attributed to: (a) higher inflation (i.e., faster increase in prices of consumer goods and services), (b) peso depreciation, (c) decline in sales and demand, (d) rising costs of production inputs, e.g., raw materials and fuel and (e) higher interest rates.

The business outlook for the next quarter also turned less upbeat as the overall CI decreased to 31.3 percent from 43.9 percent a quarter ago.

For the next 12 months, business confidence was likewise less optimistic as the overall CI decreased for the third consecutive quarter to 46.2 percent following the previous quarter’s survey result of 57.7 percent.

Business sentiment by sector is largely more optimistic in Q4 2022

The CI across all sectors increased in Q4 2022, 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.

Business outlook across all types of trading firms is mixed in Q4 2022

Across different types of trading firms (i.e., 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.

Capacity utilization edges lower in Q4 2022

The average capacity utilization of the industry and construction sectors was slightly lower at 72.1 percent in Q4 2022 (from 72.7 percent in Q3 2022).

Firms expect financial condition and access to credit to be tighter in Q4 2022

Firms expected that their financial condition and access to credit would be tighter in Q4 2022 as their corresponding indices declined further.

Firms expect a weaker peso, and higher borrowing and inflation rates in Q4 2022 and in the near term

Businesses expected that the peso may continue to depreciate against the U.S. dollar and that the peso borrowing and inflation rates may continue to rise in Q4 2022, Q1 2023 and the next 12 months.

Further, businesses expected that inflation may breach the upper end of the National Government’s 2–4 percent inflation target range for 2022-2023.

In particular, firms were expecting that inflation may settle at 6.2 percent in Q4 2022, 6.1 percent for Q1 2023 and 5.9 percent for the next ­12 months.

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[1] The Q4 2022 BES was conducted during the period 4 October – 11 November 2022. There were 1,501 firms surveyed nationwide, consisting of 584 companies in the NCR and 917 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 61 percent (from 58.8 percent in Q2 2022). The response rate was lower for the NCR at 57 percent (from 64 percent) but higher for the AONCR at 63.6 percent (from 55.4 percent).