Philippine Businesses Shake Off Pessimism in June, Outlook Turns Neutral

MANILA, Philippines — Business confidence in the Philippines has shifted to neutral territory in June, moving away from three consecutive months of pessimism, according to the latest Business Expectations Survey (BES) by the Bangko Sentral ng Pilipinas (BSP). Results of the BSP’s latest Business Expectations Survey (BES) showed the overall confidence index rose to zero in June from -25.2 percent in May and -35.8 percent in April. A neutral or zero confidence index means optimists and pessimists are nearly equal in number, suggesting that businesses are no longer predominantly downbeat about economic conditions but have yet to turn broadly optimistic. The BSP said firms attributed the better June outlook mainly to expectations of higher consumer spending as the new academic year begins. This was cited by 61.8 percent of respondents who reported improved sentiment. Another 11.8 percent pointed to lower oil prices and energy costs. Businesses have become considerably more upbeat about the months ahead. The confidence index for the next three months climbed to 18.8 percent in June from just 0.6 percent in May. For the next 12 months, the index surged to 42.4 percent from 27.8 percent. Firms were more optimistic about September on expectations of higher household consumption, as cited by 26.7 percent of those reporting an improved outlook, as well as moderating inflation pressures. Operational indicators also showed signs of recovery. The volume of business activity index swung to 8.3 percent in June from -4.5 percent in May, while the total order book index improved to 5.4 percent from -2.2 percent. Average capacity utilization among industry and construction firms rose to 73.9 percent from 70.5 percent a month earlier. Credit conditions also became less tight, with the credit access index improving to -5.7 percent from -7.3 percent. However, firms’ financial conditions deteriorated slightly, with the index slipping to -26.8 percent from -25.7 percent. Stiff domestic competition remained the most widely cited business constraint at 56.7 percent of respondents, followed by insufficient demand at 35.1 percent and financial problems at 19.5 percent. “Over the next 12 months, firms expected business conditions to improve further despite concerns that inflation could breach the BSP’s four-percent tolerance ceiling in 2027,” the BSP said. “A large share of industry firms and firms across all sectors indicated plans to expand operations and increase hiring, respectively, both of which could support economic growth,” it added. Businesses projected inflation to average 5.6 percent over the next 12 months, easing from their 5.9-percent forecast in May but still well above the BSP’s two to four percent target range. Firms expecting higher inflation cited higher energy costs and supply constraints, the ongoing Middle East conflict and peso depreciation. At the same time, businesses expected borrowing rates to rise across all three survey horizons. Firms projected the peso to average 61.33 against the dollar in June and 61.47 three months ahead. The year-ahead forecast stood at 61.11 to the dollar. The June BES was conducted from June 5 to 30 and covered 515 firms nationwide, including 193 companies in the National Capital Region and 322 firms in areas outside Metro Manila.