Philippine Business Confidence Dips Amid Geopolitical Tensions and High Oil Prices

MANILA, Philippines — Business confidence in the Philippines took a downturn in July, dipping back into pessimistic territory as companies grappled with rising costs and a less favorable outlook amid renewed geopolitical tensions in the Middle East and persistently high oil prices. The business confidence index fell to -20.3 in July from zero a month earlier, according to a nationwide survey of 506 firms conducted by the Bangko Sentral ng Pilipinas (BSP) from July 7 to 31. The decline erased the improvement recorded in June, when business confidence reached neutral territory for the first time after three consecutive months of negative readings. A negative index indicates that pessimists outnumber optimists. Most businesses citing a pessimistic outlook pointed to the renewed tensions in the Middle East following the collapse of a fragile US-Iran ceasefire during the month. Companies were also concerned about the continued high oil prices due to disruptions in the Strait of Hormuz, fueling expectations of prolonged inflationary pressures at home. Firms forecast inflation to reach 5.6 percent over the year ahead, unchanged from their June forecast, and well above the BSP’s 3 percent target. Businesses are bracing for further increases in oil prices and uncertainty over the resolution of the conflict. Looking ahead, businesses also grew more pessimistic about the coming months, citing stiff domestic competition, insufficient demand, and high interest rates. To combat inflation, the BSP has implemented three quarter-point rate hikes since April, bringing the policy rate to 5 percent. Survey data indicated that businesses now expect tighter financial conditions and credit access. The confidence index for the next three months remained positive at 3.7, but it sharply declined from 18.8 in the previous survey. Despite the weaker outlook, the share of firms planning to hire more workers during this period rose to 11 percent from 1.8 percent. However, the share of firms planning to expand their operations fell to 13.6 percent from 20.4 percent. Sentiment over the next 12 months also weakened, with the confidence index falling to 29.4 from 42.4 in the previous survey. The share of firms planning to increase their workforce decreased to 20.2 percent, while those planning to expand rose to 20.8 percent from 18.7 percent previously.