PHILIPPINE companies grew less optimistic in the third quarter of 2025 even as household sentiment improved to its strongest level in nearly two years, underscoring diverging views between firms and consumers on the economy’s near-term prospects.
The overall business confidence index fell to 23.2 percent in the third quarter from 28.8 percent in the prior quarter, the Bangko Sentral ng Pilipinas (BSP) said Friday, Sept. 26, 2025.
The drop reflects fewer optimists and more pessimists among surveyed firms, with the results broadly aligned with the softening of the purchasing managers’ index, which averaged 48.4 in July–August versus 51.2 in the second quarter.
Firms cited the “ghost month,” the rainy season and a shift in spending toward school-related needs as drags on demand. Global headwinds — including higher US tariffs, geopolitical tensions and weaker foreign appetite for Philippine goods — also dampened sentiment.
Confidence slipped across sectors, with construction companies pointing to reduced project pipelines and higher input costs, while service-oriented firms reported weaker foot traffic. Capacity utilization in industry and construction edged down to 71.1 percent from 71.4 percent in the second quarter.
Still, sentiment is expected to improve toward year-end. The confidence index for the fourth quarter rose to 49.5 percent from 39.3 percent, buoyed by anticipated holiday spending, business process enhancements, expansion plans and manageable inflation.
Companies also plan to step up hiring, with the employment outlook index increasing to 18.5 percent from 15.4 percent. The year-ahead view was less upbeat, however, with the index slipping to 48.1 percent from 51 percent as firms braced for slower post-holiday demand and global trade frictions.
Tight financial conditions added to corporate caution. The financial condition index dropped to -17.2 percent from -15.8 percent, while access to credit remained constrained at -0.5 percent. This comes despite the BSP’s 125-basis-point policy rate cuts earlier in the year.
Businesses also flagged inflationary pressures, projecting headline inflation at 2.1 percent in the third quarter, 2.3 percent in the fourth quarter and 2.4 percent over the next year, still within the two percent to four percent target but reflecting concerns about fuel prices, wage hikes and supply disruptions.
Consumers turned upbeat
By contrast, consumers turned more upbeat. The overall consumer confidence index improved to -9.8 percent in the third quarter from -14 percent in the prior quarter, its highest since late 2023. While still negative, the narrower gap signals that pessimists are declining.
For the next quarter and the year ahead, consumer confidence turned positive, climbing to 6.9 percent and 14.1 percent, respectively.
“Households are drawing comfort from improving job stability and new sources of income,” the BSP said in the CES report, which covered more than 5,400 households. Respondents cited higher expected earnings, stable prices and better employment opportunities.
Spending intentions strengthened, with 40.7 percent of households planning to spend more in the fourth quarter, particularly on food, clothing, transport and leisure. Buying sentiment for big-ticket items remained negative but improved to its highest since 2020.
Inflation expectations eased, with households forecasting 2.6 percent over the next 12 months, down from 3.7 percent in the previous survey, largely due to moderating food costs.
Risks, however, remain on both sides. Businesses and consumers alike expressed concern about higher food and fuel prices, peso volatility and borrowing costs. Survey responses varied by region: confidence weakened in most areas outside Metro Manila, particularly in Ilocos Region, Northern Mindanao and Davao Region, while households in the capital turned optimistic for the first time in over a year.
The BSP’s twin surveys — covering 1,523 firms and more than 5,400 households — are closely watched as leading indicators of investment and consumption, which together drive much of the Philippine economy. The mixed results suggest household demand may provide support in the coming quarters, even as firms remain wary of external shocks and domestic constraints. / KOC