Philippine business sentiment has improved in June, following three consecutive months of negative territory, driven by lower oil prices and increased consumer spending as classes reopened. The monthly business expectations survey yielded a 0% current-month confidence index, up from -25.2% in May, indicating that optimistic and pessimistic respondents are nearly equal in number. This improvement in sentiment is attributed to firms' expectations of lower oil prices and energy costs supporting increased business activity. The reopening of schools also boosted consumer spending during the month.
The survey shows that businesses are more optimistic for the third quarter and the next 12 months, with a confidence index of 18.8% for the next three months, jumping from 0.6% in May. This optimism is driven by expectations of higher household consumption and easing inflation pressures. The confidence index for the year ahead rose to 42.4% in June from 27.8% in May, as firms anticipate stronger demand for goods and services among consumers and better local and global economic conditions.
However, businesses surveyed still expect inflation to remain above the central bank's 4% ceiling, with a year-ahead projection of 5.6%, although this is slower than the 5.9% estimate in May. The main concerns driving inflation expectations are higher energy costs, supply constraints, the ongoing conflict in the Middle East, and peso depreciation. Inflation averaged 4.8% in June, driven by high oil prices and spillovers to other key commodities.
Philippine firms also see tightening financial conditions but slightly easing credit access, citing stiff domestic competition, insufficient demand, and financial concerns. The financial condition index worsened to -26.8% in June from -25.7% in May, while the credit access index improved to -5.7% from -7.3%. The average capacity utilization for the industry and construction sectors climbed to 73.9% in June from 70.5% last month.
The employment outlook index fell to 1.8% from 11.9% for the next three months, and to 20.2% from 20.4% for the coming year. However, more firms are willing to expand, with 20.4% looking to boost operations over the next quarter, up from 9.7% in May. For the year ahead, 18.7% expressed their intent to expand, higher than the 11.8% a month ago. The central bank surveyed 515 firms nationwide, with results indicating a favorable business outlook that could support economic growth for 2027.
