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The Financial Express

Business confidence rebounds


Business confidence rebounds

The state of business confidence has these days become one of the decisive parameters in obtaining a general view of the business environment prevailing in a country. There are of course questions often raised by analysts as to the nature and scope of such surveys and the implications they can carry for trade, commerce and investment. Obviously, the survey results reflect both motivations and impeding factors affecting business operations that may, for the most part, originate from political environment prevailing at a given time, overall economic conditions, financial and fiscal measures, stimulus for investment or the lack of it and so on.

In a commonly applied approach to confidence measurement, indices are calculated for every period for every sector as a simple (or weighted) average of balances calculated for each of the predetermined questions. Balances, in turn, represent differences between the share of "positive" and "negative" answers to each question. Thus, the aggregate information is obtained without investigating interactions on questions and responses to on an individual, household or company level. With such an approach, a few questions concerning validity of business confidence are:

  1. a) Is it possible, with the chosen set of questions, to capture a concept that can be associated with confidence?
  2. b) Is the set of confidence indicators (questions) coherent in each period of analysis?
  3. c) How should we measure the concept of confidence-is it formative or reflective?
  4. d) Does the understanding of questions and the mode of answering in different time periods remain constant?

Clearly, these are some of the core issues that often are not reflected in the surveys. Given however the limitations in terms of scope and targeting the respondents, it is still acknowledged that business confidence index is an economic indicator that measures the amount of optimism or pessimism that business owners/managers feel about the prospects of their companies/ organisations. It also provides information on future developments based on opinion surveys on production, procurement of raw materials, orders and stocks of finished goods in the industry sector, political situation, investment opportunities, government policies, prospects of business expansion and so on- dependent on country-specific circumstances. It can be used to monitor output growth and to anticipate turning points in economic activity. No doubt, business confidence survey has become an important indicator globally in that, beside reflecting on prospects that the future holds for an economy or a particular business sector, it is able to articulate from the operators' point of view a more or less clear picture of the good and the bad, and how best to grab the good and avoid the bad.

Findings of a survey on business confidence released a few days ago have provided some precise insights into the state of businesses in the country. Local think tank South Asian Network on Economic Modeling (Sanem) conducted the survey on 500 business enterprises between October 10 and 27. It measured business confidence on a scale of 0 to 100 with a score above 50 points marking improvement. Its broad finding shows an appreciable rise in present business status index (PBSI) to 52.31 in the July-September quarter from 42.57 a quarter ago. The overall PBSI, as the survey suggests, has for the first time crossed the 50-point mark since the survey got launched in July 2020.

According to the findings of the survey overall business confidence improved to 60.67 from 49.74 in the previous quarter. Firms in the sectors such as transport, light engineering, tourism, textile, RMG, and ICT expressed greater confidence in the upcoming quarter, reflecting their optimism about a better prospect in the near future. The Sanem Executive Director Selim Raihan said at a webinar in this context that there were some visible recoveries in business activities-mostly in the sub-indicators of the PBSI. Terming the recovery in a short time commendable, he added that relatively faster recovery was observed in the restaurant, garment, textile, and light engineering sectors, among others. As regards overall recovery, 21 per cent of respondents observed that the country was moving towards a strong recovery, while 27 per cent considered the recovery weak. Fifty-two per cent called the recovery moderate.

Reflection on the business situation is easy in respect of the formal sectors but it is not at all the case with informal ones involving micro, cottage small-and-medium firms. For large firms, especially exporting firms, assessing the present state of business as well as making prediction about the future follows a somewhat linear method and hence enterprise owners are better placed to know where they actually stand at a given time. Small businesses, most of which belong to the informal sector - in terms of their size and operational methods - did suffer more than any other during the worst phase of the pandemic in the past one and a half years. But it is difficult to say if there is a meaningful rebound as yet.

However, the overall picture that has emerged reflects optimism in business undertakings-though not necessarily across all sectors. What actually we can draw from the Sanem survey is that the distressing phase caused by the pandemic with many accompanying agonies is over. That is to say, it is time to plan things afresh regarding most business activities and all the government can do is extend facilitations to ease the process.  

 

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