Business sentiment in the first quarter remained upbeat but faltered compared to the previous quarter as spending slowed, the Bangko Sentral ng Pilipinas’ business expectation survey showed.

For the first quarter, the overall business confidence index (CI) fell to 44.9 percent from 49.4 percent a quarter earlier.

The 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.

But, compared to the year ago, the confidence in the first quarter was twice higher, the BSP said.

Looking ahead, for the second quarter, the outlook turned bullish with the CI rising to 49.4 percent, the same in fourth quarter last year, which is the highest ever recorded since the survey began in second quarter of 2001.

BSP deputy governor Diwa Guinigundo said in a briefing the optimism is based on expectations of better business opportunities in the run-up to the May elections and improvement in the macroeconomic fundamentals.

The increase in consumer demand, and rollback in oil and petroleum prices also boosted sentiment, Guiniguindo said.

The survey said sentiment in the first quarter dropped compared to the previous quarter as consumers adjusted their purchases.

Businesses are normally upbeat on the fourth quarter, the holiday season when spending peaks.

Among the respondents, the services sector expressed the highest confidence at 68.5 percent in the first quarter.

The financial institutions and hotels and restaurants sub-sectors were the most bullish with their indices inching up to 90.8 percent and 86.4 percent respectively.

The latter’s optimism is based on the influx of tourists from the temperate zones, the survey indicated.

The renting and business activities sub-sector index also rose to 60.8 percent due as businesses expect increase demand for election-related goods and services.

The construction sector was also positive, with an index of 50 percent, wholesale and retail sector at 40.6 percent, and industry sector at 30 percent.

For the second quarter, the services sector is the most upbeat with an index of 62.1 percent, though lower from the first quarter.

The renting and business activities sub-sector boosted the confidence with an index of 68.6 percent on higher business activity.

The hotel and restaurants sub-sector is positive at 56.8 percent but lower than in the current quarter.

The industry sector index is at 46.1 percent, and wholesale and retail at 43.6 percent.

Confidence in the construction sector ebbed with an index of 39.9 percent.

For the first quarter, the respondents expected stronger volume of business activity at 22.6 percent and higher total order book at 17.1 percent, or a 6.6 points and 2.6 points improvement from a year earlier.

But the numbers were lower than in the previous quarter due to the adjustment in consumer spending.

Access to credit remained positive with the index at 10.1 percent but the financial condition index stayed negative at 8.8 percent, higher by 15.6 points year on year and by 7.3 percent in the previous quarter.

Respondents said competition from local firms is the primary factor that threatens business in the short term. They also cited insufficient demand, leading to low sales volume, as another major business risk.

Respondents expected the peso to remain strong, inflation to continue to fall and interest rates to remain low. They see these trends sustained in the next quarter, except for inflation, which is seen rising due to increased election spending.

The survey was conducted on January 15 to February 16, 2007. It had 1,087 respondents from the Securities and Exchange Commission’s Top 5,000 corporations.

It had a response rate of 71 percent.

The survey is used to predict the outcome of gross domestic product in the current quarter.