Business confidence improves in February before Middle East conflict — BSP survey

Businesses were more optimistic in February as they expected strong consumer demand and better economic conditions, results of the Bangko Sentral ng Pilipinas’ (BSP) monthly business expectations survey (BES) showed.

The central bank’s BES for February showed that businesses had an overall current-month confidence index (CI) of 8.2%, picking up from the 0.9% seen in January.

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

“Respondents attributed their more optimistic sentiment in February 2026 to: higher income and sales supported by stronger demand for goods and services, better domestic economic conditions, including higher growth prospects and stable inflation, and improved investor confidence on the back of higher public infrastructure spending and sustained governance reforms,” the BSP said.

The February 2026 BES was conducted from Feb. 5-28, before the onset of the US-Israeli war on Iran.

“The sustained recovery in business confidence and stable inflation expectations will therefore depend on how long the (Middle East) conflict lasts and how it affects the domestic economy,” the central bank said.

The survey also showed businesses were more optimistic for the second quarter and the next 12 months.

The confidence index for the next three months rose to 37.4% from 33.3% previously, as businesses anticipate “firmer consumer demand during the summer season, favorable weather conditions, higher public works spending, stable inflation, and recovery in investor confidence.”

At the same time, the CI for the year ahead went up to 51.1% from 38.6% previously, driven by expectations of stronger demand during the peak season and Christmas holidays, higher productivity and efficiency in business operations, and better economic prospects.

Meanwhile, the BSP survey showed firms expect a “less tight cash position but tighter credit access” in February.

The financial condition index, which refers to a firm’s general cash position considering the level of cash and other cash items and repayment terms on loans, improved but remained in negative territory at -15.2% in February from -19.2% in January.

In contrast, the credit access index turned more negative to -4% in February from -0.6% in the prior month. This refers to the firm’s external environment, such as the availability of credit in the banking system and other financial institutions.

The BSP survey also showed the average capacity utilization for both the industry and construction sectors slipped to 67.2% in February from 69.6% in January.

“The decline was mainly driven by an increase in the number of industry firms operating at medium capacity (60-69%) and a decrease in the number of firms operating at high capacity (80-100%),” the BSP said.

According to respondents, business activity was limited due to stiff domestic competition, insufficient demand, and high interest rates.

Meanwhile, firms had a better jobs outlook in the next quarter and the next 12 months.

The employment outlook for the next three months went up to 27.2% from 11.3% previously, while the outlook for the year ahead rose to 30% from 23.3% previously.

“However, industry sector expansion may ease over the same period. The share of businesses in the industry sector with expansion plans for May 2026 and the next 12 months declined from 14.1% and 24.3% to 11.6% and 14.2%, respectively, the BSP said.

Peso, inflation outlook

The BSP survey also showed businesses expect the peso to appreciate against the US dollar in the near term but expect it to depreciate over the next 12 months.

Firms saw the local unit averaging PHP 58.68 per dollar for February, PHP 58.76 for May, and PHP 58.94 over the next 12 months.

In February, the peso appreciated by 1.195 or by 2.03% to close at PHP 57.665 on Feb. 27 from its PHP 58.86 finish on Jan. 30.

However, the peso slumped against the US dollar in March, mainly due to global pressures — higher oil prices, stronger US dollar and skittish investors amid the Middle East conflict. On Friday, the local unit dropped to a new record low at PHP 60.55, weakening by 32 centavos from its PHP 60.23 finish on Thursday, Bankers Association of the Philippines data showed.

At the same time, the BSP said business inflation expectations are still “well-anchored.”

Firms saw inflation averaging 2.3% in February and picking up to 2.5% in May and 2.7% in the next 12 months.

“These expectations fall below the BSP’s 3% inflation target for 2026 but remain within the tolerance range of ±1 percentage point around the target,” the central bank said.

The consumer price index rose 2.4% in February from a year earlier, making it the fastest print since 2.9% in January 2025. This brought the average inflation to 2.2% in the January-to-February period.

Last week, the BSP raised its inflation forecast for 2026 to 5.1% to 3.6% previously, amid the Middle East conflict. — Aaron Michael C. Sy Reporter