Philippine Markets Newsletter

PH MONDAY MACRO: Macroeconomic headwinds are weighing down on business confidence, suggesting investor caution

August 22, 2022

Collectively, when businesses are optimistic about the future macroeconomic environment, that usually signals they are likely to focus on company growth. In effect, the economy is likely to strengthen considering that businesses are a major contributor to the country’s total economic output.

With that, we turn to this index to quantify the aggregate business sentiment—whether optimistic or pessimistic—and draw some insights as to what the market will look like in the short term.

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Confidence indices are a powerful tool investors use to determine meaningful signals regarding the economy’s strength over the next quarter or year.

The Business Confidence Index (BCI), for example, measures the macroeconomic outlook of businesses over a set time period. Negative results indicate pessimistic growth expectations, while positive results indicate the opposite.

Furthermore, the index quantifies expectations on how accommodating the economic environment will be for growth, as well as expectations on the robustness of future consumer demand.

A reason why investors turn to the BCI to assess the broad economic expectations in the short term is because it carries relevant information regarding how businesses are likely to act over the same time period.

That is, a favorable macroeconomic outlook would imply that businesses are more likely to have an increased volume of operational activity, which could also lead to the execution of growth and expansion plans. An unfavorable outlook, on the other hand, would imply less focus on growth.

The BCI jumped from 31.9% in Q4 2021 to 52.8% in Q1 2022 thanks to the availability of more vaccines and increasing number of people getting vaccinated, increased consumer demand, improving economic conditions, and decreasing COVID cases.

Businesses remained optimistic for Q2 2022, with the BCI remaining at 50%-60% levels for the same reasons as the previous quarter.

For Q3 2022, however, the BCI fell from 59.7% in the previous quarter to just 46.4%. This indicates that while business sentiment is still overall positive, current and expected market conditions are less conducive for growth.

Specifically, businesses have concerns about uncertainties surrounding the Presidential transition, steadily increasing COVID cases, skyrocketing inflation and production costs, seasonal downturns due to weather disturbances, and other global headwinds impacting local demand and supply.

Businesses are also expecting these headwinds to affect their operations over the next year as indicated by the decline in next-twelve-months BCI. As is the case, fewer firms across most industries are planning to expand their operations over the same time period.

All said, broad pessimism by businesses over the next quarter and year as indicated by a declining BCI suggests caution for investors.

While the BCI does serve as a useful tool in forecasting corporate growth by way of economic expectations, it would still be best if other macroeconomic indicators are looked into and used in conjunction with the index to make investment decisions.

About the Philippine Markets Newsletter
“The Monday Macro Report”

When just about anyone can post just about anything online, it gets increasingly difficult for an individual investor to sift through the plethora of information available.

Investors need a tool that will help them cut through any biased or misleading information and dive straight into reliable and useful data.

Every Monday, we publish an interesting chart on the Philippine economy and stock market. We highlight data that investors would normally look at, but through the lens of Uniform Accounting, a powerful tool that gets investors closer to understanding the economic reality of firms.

Understanding what kind of market we are in, what leading indicators we should be looking at, and what market expectations are, will make investing a less monumental task than finding a needle in a haystack.

Hope you’ve found this week’s macro chart interesting and insightful.

Stay tuned for next week’s Monday Macro report!


Angelica Lim
Research Director
Philippine Markets Newsletter
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