Philippines business sentiment improved in Q3 2011, with the confidence index (CI) rising to 34.1 percent from  31.8 percent in Q2 2011, according to a poll conducted by the Philippine Central Bank.

The confidence index is computed as the percentage of firms that answered in the affirmative less the percentage of firms that answered in the negative with respect to their views on a given indicator. This is the first quarter-on- quarter uptick in sentiment after two consecutive periods of decline in confidence readings since Q4 2010.

The higher CI in Q3 2011 indicates that more businesses are optimistic about the country's economic prospects and their own operations than in the previous quarter.

Respondents cited the following factors for their more buoyant outlook: (a) expectations of more robust demand, (b) implementation of government projects, including the Public-Private Partnership (PPP) program, (c) sound macroeconomic fundamentals, (d) business expansion arising from steady investment inflows, (e) recovery of markets in Japan, (f) introduction of new and enhanced business strategies, and (g) strong confidence in the government.

Their responses suggest that the challenges posed by the recent US credit rating downgrade and by sovereign debt crisis issues in some parts of Europe could be countered by stronger domestic demand, higher fiscal spending, and continued growth in the private sector. 

The outlook of businesses turned more bullish in the quarter ahead (Q4 2011). The next quarter CI at 53.9 percent was a marked improvement over the 33.0 percent index recorded in Q2 2011. This suggests that the growth momentum could accelerate in the last quarter of 2011.

International Trading

The outlook of businesses involved in international commodity trading was mixed. Importers and those engaged in dual activities were more bullish in Q3 and Q4 2011 as a result of the stable and strong peso and the uptick in domestic consumption.

Exporting firms however, were less optimistic due to anticipated weak demand in the world market, lack of raw materials and the occurrence of diseases in major banana-growing areas in the country.

By employment size, outlook of firms in Q3 2011 was mixed ? more optimistic for small firms, steady for medium firms, and less upbeat for large-sized firms. Going forward to Q4 2011, firms across all employment sizes were more upbeat in their outlook compared to the previous quarter survey.