Business confidence sinks as geopolitical risks mount

Renewed tensions in the Middle East and persistently high oil prices weighed on Philippine businesses in July, pushing sentiment back into pessimistic territory as companies faced rising costs and a less favorable outlook for the months ahead.

The business confidence index fell to -20.3 in July from zero a month earlier, according to a nationwide survey of 506 firms conducted from July 7 to 31 and released by the Bangko Sentral ng Pilipinas (BSP) on Friday.

The decline erased the improvement recorded in June, when business confidence reached neutral territory for the first time after three consecutive months of negative readings.

A negative index indicates that pessimists outnumber optimists.

Most businesses that reported a pessimistic outlook cited renewed tensions in the Middle East after a fragile US-Iran ceasefire collapsed during the month. Companies were also concerned about persistently high oil prices as disruptions in the Strait of Hormuz continued, fueling expectations of prolonged inflationary pressures at home.

Firms expected inflation to reach 5.6 percent over the year ahead, unchanged from their June forecast. The projection remained well above the BSP’s 3 percent target, as businesses braced for further increases in oil prices and uncertainty over when the conflict would be resolved.

Looking ahead, businesses also grew more pessimistic about the coming months, as they grapple with stiff domestic competition, insufficient demand and high interest rates.

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To combat inflation, the BSP has delivered three quarter-point rate hikes since April, bringing the policy rate to 5 percent. Survey data showed businesses now expect tighter financial conditions and credit access.

The confidence index for the next three months remained positive at 3.7, but fell sharply from 18.8 in the previous survey. Despite the weaker outlook, the share of firms planning to hire more workers during the period rose to 11 percent from 1.8 percent. The share of firms planning to expand, however, fell to 13.6 percent from 20.4 percent.

Sentiment over the next 12 months also weakened, with the confidence index falling to 29.4 from 42.4 in the previous survey. The share of firms planning to increase their workforce fell to 20.2 percent, while those planning to expand rose to 20.8 percent from 18.7 percent previously.