Business confidence collapses in July

Manila, Philippines — Business confidence plummeted in July as renewed tensions in the Middle East and persistent inflation dampened optimism among Filipino firms, as reported by the Bangko Sentral ng Pilipinas (BSP). The Business Expectations Survey (BES) revealed that the overall business confidence index plunged to a negative value of -20.3 percent in July, marking a sharp contrast from the neutral stance in June. This shift indicated that a majority of businesses were pessimistic rather than optimistic.

"The souring business sentiment in July 2026 was driven by heightened concerns over Middle Eastern hostilities, surging oil prices, and ongoing inflationary pressures," the BSP emphasized. Furthermore, businesses projected a less upbeat outlook for the upcoming three months and a year. While they remained cautiously optimistic about the economic picture over the next 12 months, this confidence level was notably lower than in the preceding survey.

The short-term outlook also worsened, with the three-month-ahead confidence index dropping to 3.7 percent from 18.8 percent, and the 12-month outlook declining to 29.4 percent from 42.4 percent.

The United States and Iran's recent airstrike exchanges heightened fears of a renewed conflict in the Middle East, exacerbating the region's instability. As a net oil importer, the Philippines faced oil and energy shocks since early in the year, contributing to the economic strain. Despite a slight cooling of headline inflation to 6.1 percent in August from 6.2 percent in July, it remained significantly higher than the target band of 2 to 4 percent set by the BSP. Inflation, at an average of 5.2 percent over the past eight months, far exceeded this range.

Economic growth slowed to a modest 2.3 percent in the second quarter, hampered by reduced household consumption and a sharp decline in public construction, which negatively impacted investment. Looking ahead to the next 12 months, fewer firms indicated plans to increase hiring due to forecasts of slower growth and elevated inflation.

However, firms in the industry sector still expected to expand their operations in the upcoming year. The financial condition index worsened to -31.4 percent from -26.8 percent, while the credit access index deteriorated further to -7 percent from -5.7 percent. "Employment prospects appeared less favorable as the share of businesses planning to hire additional workers over the next 12 months declined," the BSP noted.