Philippine business sentiment turns sour in July amid inflation, war woes

Philippine business sentiment turned sour as renewed tensions in the Middle East and sticky price pressures sparked concerns, a survey by the Bangko Sentral ng Pilipinas (BSP) showed.

Based on the central bank’s latest business expectations survey (BES), Philippine firms’ current-month confidence index (CI) plunged to -20.3% in July.

This was a reversal from the neutral sentiment or 0% CI in June, and was the lowest CI seen since May’s -25.2%.

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

“Philippine business sentiment turned pessimistic in July 2026 amid renewed concerns over tensions in the Middle East, higher oil prices, and persistent inflationary pressures,” the central bank said in a statement on Friday.

Businesses also became less upbeat for the next three months and the coming year.

Their CI for October fell to 3.7% from 18.8% the prior month, as the prolonged conflict in the Middle East, rising fuel costs, and weak investor sentiment clouded their outlook.

For the year ahead, their CI also dropped to 29.4% in July from 42.4% in June amid concerns over the Middle East war’s economic drags, dismal growth prospects due to the energy shock, and governance issues weighing on investor confidence.

Over six months since it broke out, the Middle East war has shown no credible sign of resolution, as fresh attacks exchanged between the United States and Iran have shattered recent peace negotiations.

War-driven energy shocks have hit net importers such as the Philippines, where growth has slumped to post‑pandemic lows for consecutive quarters while inflation continued to run hot.

In the second quarter, Philippine gross domestic product (GDP) hit its weakest since the pandemic after slowing to 2.3% from 2.8% in the first quarter and 5.4% a year ago.

This brought the country’s first-half growth to 2.6%, well below the government’s 3.5%-4.5% full-year target.

Meanwhile, inflation averaged 5.2% as of August as the headline print remained above the BSP’s 3% target for six consecutive months or since the Middle East war erupted.

Amid this macro backdrop and lingering uncertainty, local firms expect inflation to breach the BSP’s 4% ceiling in the year ahead.

They see inflation over the next year at 5.6%, unchanged from June, as at least one in five businesses anticipate further oil price hikes and show concern over the uncertain resolution of the Middle East war.

Tighter conditions ahead

On the other hand, local businesses are bracing for tighter financial conditions and stricter credit access in the coming months.

Results of the BES showed firms’ financial condition index turned more negative at -31.4% in July from -26.8% in June. This refers to a firm’s general cash position considering the level of cash and other cash items and repayment terms on loans.

Their credit access index also worsened month on month to -7% from -5.7%. This refers to the firm’s external environment, such as the availability of credit in the banking system and other financial institutions.

Businesses’ average capacity utilization in industry and construction likewise edged lower to 68.6% from 73.9% in June.

“The top business constraints were stiff domestic competition, insufficient demand, (and) high interest rates,” the central bank said in its report.

Meanwhile, firms were more willing to hire over the near term but seem downbeat for the year ahead. Their employment outlook index improved for the next three months to 11% from 1.8% in June, but worsened for the next 12 months to 9% from 20.2%.

Based on the survey, 13.6% of local companies plan to expand in October, down from 20.4% a month ago. However, those open to doing so in the coming year rose to 20.8% from 18.7%.

“Over the next 12 months, fewer firms indicated plans to hire additional workers amid expectations of softer growth and elevated inflation,” the BSP said. “Nevertheless, firms in the industry sector still reported plans to expand operations next year.”

The central bank surveyed 506 firms nationwide from July 7-31. This consisted of 193 firms from the National Capital Region (NCR) and 313 outside NCR. — Katherine K. Chan, Reporter