Philippine businesses became less pessimistic in August, with firms expecting stronger demand, improved earnings and greater economic activity in the months ahead despite continuing concerns over inflation, oil prices and operating costs.
The Bangko Sentral ng Pilipinas’ August Business Expectations Survey showed the overall business confidence index improving to -10.9 from -20.3 in July. Although the reading remained negative, the sharp improvement indicated that pessimism among firms had eased during the month.
Businesses were considerably more upbeat about the near-term outlook. The confidence index for the next three months climbed to 24.6 from 3.7, while the 12-month outlook rose to 36.4 from 29.4. The stronger expectations were largely linked to anticipated increases in demand for goods and services.
About 80% of firms that became less pessimistic cited higher demand as a major reason for their improved outlook. Businesses pointed to stronger demand for essential commodities, financial products and loans, as well as increased construction activity.
Firms also expect activity to strengthen toward the end of the year. For November, businesses cited stronger demand for consumer and financial products and services, along with increased activity associated with the holiday period and rice harvest season.
Hiring expectations also improved. The employment outlook index jumped to 30.7 in August from 9.0 in July, suggesting that more firms were planning to increase employment over the following 12 months. However, the share of industry companies planning to expand their operations declined to 17.1% from 20.8%.
Businesses nevertheless continue to face significant constraints. Domestic competition, insufficient demand and high interest rates remained among the main challenges, while companies also cited adverse weather, elevated inflation, higher oil prices and rising production and operating costs.
Inflation remains one of the biggest uncertainties in the business outlook. Firms placed their expected inflation rate for the next 12 months at 5.4%, slightly lower than the previous month’s expectation but still above the Bangko Sentral ng Pilipinas’ 4% upper tolerance limit. Higher oil prices, uncertainty surrounding the Middle East conflict and weaker purchasing power of the peso were among the concerns cited.
The improvement in business sentiment was accompanied by a stronger household outlook. The BSP’s third-quarter Consumer Expectations Survey showed the consumer confidence index improving to -29.8 from -42.0 in the second quarter. The outlook for the following quarter also improved sharply, rising to -0.8 from -16.3.
Consumers were even more positive about the longer term. The 12-month consumer confidence index climbed to 9.1 from 0.2, reflecting expectations of higher earnings, additional sources of income and more stable employment. However, households remained cautious about spending and borrowing.
The surveys also show why improved sentiment does not necessarily mean that households and businesses have fully recovered their confidence. Consumers continued to worry about food and utility prices, while firms remained concerned about operating expenses and the possibility of continued increases in energy costs.
The August business survey covered 501 firms nationwide and was conducted from Aug. 5 to 31. The third-quarter consumer survey covered 5,476 households and was conducted from July 1 to 13, providing a broad snapshot of economic expectations among companies and consumers.
The latest figures therefore point to a Philippine economy in which sentiment is improving, but caution remains deeply embedded in business and household decisions. Stronger demand and better employment expectations are providing support, while inflation, oil prices, interest rates and operating costs continue to limit confidence.
The key issue for the coming months will be whether the improvement in expectations translates into stronger actual spending, investment and hiring — or whether persistent cost pressures keep Philippine businesses and consumers cautious.
