Business sentiment turned less optimistic in the fourth quarter as the overall confidence index (CI) declined for the second consecutive quarter to 23.9 percent from 26.1 percent in the third quarter.

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 the fourth quarter 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.

The CI across all sectors increased 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.

Across different types of trading firms (i.e., exporter, importer, dual-activity and domestic-oriented), business sentiment was mixed in the fourth quarter. Importers and dual-activity firms were less optimistic, while exporters and domestic-oriented firms were more upbeat in the current quarter.

The average capacity utilization of the industry and construction sectors was slightly lower at 72.1 percent in the fourth quarter (from 72.7 percent in the third quarter).

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

Businesses expected that the peso may continue to depreciate against the US dollar and that the peso borrowing and inflation rates may continue to rise in the fourth quarter, first quarter of 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 the fourth quarter , 6.1 percent for the first quarter and 5.9 percent for the next -12 months. BSP