BUSINESSES in the Philippines turned pessimistic in July as renewed tensions in the Middle East, higher oil prices and persistent inflationary pressures clouded the economic outlook, according to a survey by the Bangko Sentral ng Pilipinas (BSP).
The overall business confidence index fell to -20.3 in July from zero in June, marking a return to pessimism after businesses had been evenly split between optimistic and pessimistic views a month earlier, the BSP’s July 2026 Business Expectations Survey showed.
Businesses cited renewed tensions in the Middle East as the biggest reason for their weaker outlook, accounting for 19.8 percent of negative responses. Higher oil prices amid disruptions in fuel shipments through the Strait of Hormuz accounted for 15.1 percent, while persistent inflationary pressures accounted for 11.3 percent.
The weaker sentiment was also reflected in firms’ assessment of their own operations. The current-month business activity index slipped to -0.1 from 8.3, while the total order book index fell to -0.7 from 5.4, the survey data showed.
Financial conditions deteriorated further, with the financial condition index declining to -31.4 from -26.8, while the credit access index fell to -7.0 from -5.7. Average capacity utilization in the industry and construction sectors dropped to 68.6 percent from 73.9 percent in June.
The survey identified stiff domestic competition, insufficient demand and high interest rates as the top constraints faced by businesses. Domestic competition was cited by 59.4 percent of respondents, followed by insufficient demand at 36.5 percent and high interest rates at 24.4 percent.
Businesses remained cautiously optimistic about the longer term, although sentiment weakened. The confidence index for the next three months fell to 3.7 from 18.8, while the 12-month index declined to 29.4 from 42.4.
Firms said continued geopolitical tensions, rising fuel costs and weaker investor sentiment were weighing on their three-month outlook. For the year ahead, concerns centered on the economic impact of a prolonged Middle East conflict, elevated energy prices and governance-related issues.
Despite the weaker confidence, 20.8 percent of industry firms said they planned to expand operations over the next 12 months, up from 18.7 percent in June. Hiring intentions, however, weakened, with the 12-month employment outlook index falling to 9.0 from 20.2.
Inflation remained a major concern. Businesses’ year-ahead inflation expectation held at 5.6 percent, unchanged from June and above the BSP’s four-percent tolerance ceiling. Among firms expecting higher inflation, 23.1 percent cited further oil price increases while 21.8 percent pointed to uncertainty over when the Middle East conflict would be resolved.
The BSP survey covered 506 firms nationwide from July 7 to 31, with a 48.8 percent response rate. / KOC