Business outlook reflects signs of improvement

• But still weighed down by challenging macro-conditions and rising prices

The near-term outlook for businesses showed mixed results measured across several criteria, as less favourable macro-economic conditions and rising prices offset the gradual improvements seen in the appetite for investments, demand for goods and services, and bank credit.
The business outlook survey conducted quarterly by the Central Bank showed that business conditions have continued to improve through the third quarter this year, recording the highest index value since the first quarter of last year when things started souring with the unraveling of the economy caused by the run out of foreign currency.
Despite the advances, however, the index still remains below the 100 level or the neutral level which splits the index from an improvement and a worsening.
The index is expected to remain below the threshold even through the fourth and final quarter of the year, the survey has found.
Many survey participants have cited challenging macro-economic conditions as the leading reason for these continued weak business conditions. All three major economic sectors, industry, and services recorded declines in business conditions during the third quarter. 

Meanwhile, business activities measured by demand and sales have improved during the third quarter, driven by services and are expected to improve further through the fourth quarter.
Further, capacity utilisation, another criterion used to measure the business outlook, while improved during the third quarter, the majority has seen it was below potential. However, it is expected that it will improve in the ongoing quarter.
While the balance of opinion on investments also increased in the third quarter, it is expected to further improve in the fourth quarter from a year earlier levels.
Meanwhile, the profitability of firms came under pressure as rising input prices compressed the margins of the businesses, as they couldn’t pass down the rising prices on to consumers.
However, it is expected that despite the rising input prices, the firms would be able to raise their output prices, helping them to improve their profitability in the fourth quarter.
While the demand for bank credit improved in the third quarter, access to credit remained constrained mostly due to the still-high borrowing cost.
However, the survey has observed that the demand for bank credit was improving during the fourth quarter, mainly for operational purposes, perhaps as a result of continuous easing in lending rates and also the gradual improvement seen in the economic conditions.