By MAX ESTAYO

Business confidence weakened in the first quarter according to the Bangko Sentral ng Pilipinas as investors grapple with fears of an impending US economic slowdown, increasing oil prices (which hit over $100 per barrel yesterday), strong peso and louder political noise.

Iluminada Sicat, director of the BSP’s department of economic statistics, said the businesmen’s confidence index fell to 29.9 percent in the current quarter from 48 percent in the previous quarter and 44.9 percent last year.

BSP does a quarterly business expectation survey.

The confidence index (CI) is computed as the percentage of firms that answered in the affirmative less the percentage of firms that answered in the negative in a given indicator.

For the second quarter, respondents were more upbeat with the index rising to 41 percent from 40.9 percent in the previous quarter but still lower than 49.4 percent last year.

"The result of the survey showed the impact of the US subprime issue and fear of possible US recession and global slowdown and the attendant credit crunch," BSP deputy governor Diwa Guinigundo said.

"It also reflects the seasonal effect of less bullishness in the market after the holidays," he said.

Guinigundo said recent developments including the spike in inflation in December, the continued peso appreciation which is a concern of exporters, and the surge in crude and commodity prices contributed to the decline in the index.

Guinigundo said the political noise also led to the weakening of business sentiment.

The survey was conducted from January 7 to February covering 1,258 firms from the Securities and Exchange Commission’s 2006 top 7,000 corporations.

It had a response rate of 68.4 percent.

Of the respondents, 14.5 percent were importers, 16.2 percent both importers and exporters, and 9.8 percent exporters.

By type of respondents, importers were the most optimistic, with their CI at 36.8 percent in the first quarter and 50.4 percent for the next quarter.

Expectations of lower import costs in peso terms due to the stronger peso may have buoyed the importers’ outlook, the BSP said.

Hard hit by the strong peso were commodities traders with their confidence index dropping to 3.5 percent in the current quarter from 24 percent in the previous quarter and from last year.

The index for the exporters-importers fell to 9.3 percent from 37-39 percent in the comparable quarters, the BSP said.

Among the sectors, the construction and services sector were the most bullish with their indices at 42.2 percent and 42.1 percent, respectively.

The BSP said the positive outlook in construction reflected the continuing boom in the property market.

In the services sector, the finance, hotel, real estate, and community and social services sub-sectors posted the highest confidence levels.

For the first quarter, respondents who anticipated an improvement in their operations outnumbered those who indicated otherwise, the BSP said, but they were expecting a slowdown in business operations consistent with the dip in sentiment for the period.

The BSP said the employment index was at 21.7 percent, indicating increased plans to hire in the second quarter while the number of industrial firms with expansion plans posted 37.8 percent.

The respondents cited competition and insufficient demand leading to low volume of sales as constraints to business.

The respondents also expect the peso to remain strong in the first and second quarters, inflation to pick up in both quarters and the interest rates to drop during the two quarters.