Inflation woes drag Philippine business confidence in April

By Katherine K. Chan, Reporter

Business sentiment worsened further in April as firms expressed worries over heated inflation driving up operating costs and weakening consumer spending amid the Middle East war, a survey from the Bangko Sentral ng Pilipinas (BSP) showed.

Based on the central bank’s latest business expectations survey (BES), local firms’ current-month confidence index (CI) further slumped to -35.8% in April from -24.3% in March.

This was the worst CI seen since the central bank began issuing the BES on a monthly basis in January.

A negative CI shows that more respondents are pessimistic than optimistic.

“Philippine businesses continue to be affected by the Middle East conflict, as confidence in April declined for the second consecutive month,” the central bank said in a statement on Friday. “This was driven by concerns that higher inflation could raise firms’ operating costs and erode households’ purchasing power.”

However, local businesses had a better outlook for the coming months as their CI for the next three months and the year ahead improved.

For July, firms had a CI of -7.5% from -17.3% a month ago as consumer demand for the upcoming school season is expected to boost business conditions.

“Firms were less pessimistic about the next three months mainly because the start of the academic year for most schools is expected to drive demand for loans and financing products, as well as for clothing and apparel,” the BSP said in their report.

Meanwhile, their CI for the next 12 months climbed to 19.5% from 11.7% as businesses hope for economic recovery amid a potential resolution to the Middle East war.

“Looking 12 months ahead, they were more optimistic due to anticipated stronger demand for business process outsourcing, construction, and transportation services,” the central bank said.

“Respondents also cited expectations of higher sales and income, better overall economic conditions, and a possible resolution of the Middle East conflict as additional reasons for their improved outlook,” it added.

FINANCIAL, ECONOMIC OUTLOOK DIMS
On the other hand, Philippine firms’ financial condition index and credit access index declined in April.

According to the same survey, businesses’ financial condition index further slipped to -35.5% from -24.9% in March. This refers to a firm’s general cash position considering the level of cash and other cash items and repayment terms on loans.

The credit access index, which refers to the firm’s external environment, such as the availability of credit in the banking system and other financial institutions, also fell to -9.9% in April from -7.1% in the prior month.

The average capacity utilization for the industry and construction sectors stood at 69.9% as more industry and construction firms operated below their 50% capacity amid strict domestic competition, weak demand and high interest rates during the period. This was down from 73.1% in March.

“In addition, firms indicated that the high price of oil amid the ongoing Middle East conflict as a further constraint given its direct impact on their production costs,” the BSP added.

Still, firms were more willing to hire in the short term, with the employment outlook index for the next three months rising to 6.1% from -0.1%, while the outlook for April 2027 eased to 9.5% from 10%.

However, concerns stemming from the Middle East war continued to weigh on businesses’ expansion plans.

“Despite a more favorable 12-month-ahead overall business outlook, fewer firms indicated plans to expand due to heightened demand uncertainty resulting from the Middle East conflict,” the central bank said.

Only 14% of industry firms plan to expand in July, while 19% are open to doing so in the coming year. These were down from 28.8% and 30.7%, respectively.

The BES likewise showed that businesses expect the peso to remain weak against the dollar this year before recovering over the next year.

Firms surveyed projected the currency to average P59.90 per dollar last month, P60.14 in July and P60.11 in April 2027.

On April 30, the local unit closed at P61.485 versus the greenback, falling by 73.7 centavos from its P60.748 finish on March 31. Separate BSP data showed it averaged P60.2913 per dollar in April.

Inflation will also likely stay above the central bank’s 2%-4% target until April next year, according to the survey.

In April, businesses estimated the headline print to settle at 4.2% and expected it to quicken to 4.2% in July before easing to 4.2% in the next 12 months.

Inflation hit 7.2% in April, the fastest pace in over three years, as high oil prices pushed up the cost of other key commodities such as food and utilities.

The central bank surveyed 507 firms nationwide, with 193 from the National Capital Region (NCR) and 314 in areas outside NCR, from April 7-30.

“The BSP continues to closely monitor the impact of the ongoing Middle East conflict on domestic prices and the broader economy,” the central bank said. “It stands ready to take necessary monetary action to prevent de-anchoring of inflation expectations from the 3-percent target to protect households and businesses.”