Trade uncertainty dampens Philippine business sentiment

Business sentiment  in the Philippines turned less upbeat in the second quarter amid concerns over the impact of the Trump administration’s tariff policy on the economy, a survey by the Bangko Sentral ng Pilipinas (BSP) showed.

The latest BSP Business Expectations Survey showed the overall confidence index (CI) for businesses declined to 28.8% in the second quarter from 31.2% in the first quarter, and from 32.1% a year ago. 

This was the lowest recorded CI since the 23.9% logged in the fourth quarter of 2022. It also marked the second quarter in a row that the index declined since the 44.5% CI in the fourth quarter of 2024.

The survey was conducted from April 4 to May 19, covering 1,527 firms nationwide.

A positive CI indicates that more respondents are optimistic than pessimistic.

“Philippine businesses were cautiously optimistic about the economy in the second quarter of the year. They were primarily concerned about the potential impact of reciprocal tariffs on Philippine exports to the United States and uncertainty over their implementation,” the BSP said in a report.

In April, US President Donald J. Trump announced a baseline 10% tariff on all its trading partners, as well as higher reciprocal tariffs on some countries. The Philippines was slapped with a 17% tariff, the second lowest among Southeast Asian countries.

While the reciprocal tariffs have been paused for 90 days until July 9, the baseline 10% tariff remains in place.

“The expected slowdown in business activity after the May midterm elections and the sugar off-milling season also weighed on business confidence,” the BSP said.

Businesses turned less optimistic for the third quarter, with the CI falling to 39.3% from 45.4% in the previous survey. This was the lowest since 38.2% in the fourth quarter of 2023.

For the next 12 months, firms were less upbeat, with the CI dropping to 51% from 56.4% in the previous quarter.

The BSP said businesses cited “expectations of fewer clients and orders due to expiring contracts and softer market conditions as a reason for their more cautious year-ahead economic outlook.”

Survey respondents expect the peso to appreciate against the dollar over the next 12 months but see an uptick in inflation.

Firms expect the peso to average PHP 57.09 per dollar in the second quarter, PHP 57.12 in the next quarter, and PHP 57.14 for the next 12 months.

Firms also see inflation averaging 2.8% in the second quarter, 2.9% next quarter, and 3% for the next 12 months.

Consumer outlook

Meanwhile, Filipino consumers were more pessimistic in the second quarter but turned positive in their outlook for the third quarter, according to the BSP’s latest Consumer Expectations Survey (CES).

The survey showed the CI in the second quarter fell to -14% from -13% in the previous quarter, as consumers cited “higher inflation, lower family income, and fewer job opportunities” as the reasons for the downbeat sentiment. 

A negative CI means more respondents are pessimistic than optimistic.

For the third quarter, the CI turned positive at 0.6% from -0.5% in the previous survey.

Consumer sentiment for the next 12 months dipped to 11.8% from the 12.4% in the previous survey.

Filipino consumers attributed the positive outlook to higher household income, more jobs and moderating inflation.

“Households expect that the inflation rate may increase in mid-2025 and over the next 12 months. However, inflation expectations are expected to ease during this period as the corresponding inflation rate diffusion indices declined from their Q1 2025 levels,” the BSP said.

Consumers expect inflation to average 3.7% in the next 12 months, a tad lower than the 3.8% in the previous survey.

For the second quarter CES, the BSP surveyed 5,444 households from April 2 to 15. — A.M.C.Sy