Firms see better prospects but consumers remain wary

MANILA, Philippines — Businesses turned less pessimistic in May while consumers grew more downbeat in the second quarter, reflecting a split in sentiment as firms pointed to easing cost pressures and stronger demand, but households remained weighed down by inflation fears and concerns over governance.

In its latest Business Expectations Survey (BES), the Bangko Sentral ng Pilipinas (BSP) said the overall business confidence index improved to -25.2 in May from -35.8 in April, indicating that while pessimists still outnumbered optimists, sentiment became less negative month-on-month.

Respondents attributed their improved outlook to “higher consumer spending and corporate earnings” and “lower oil prices and energy costs.”

Firms were also more upbeat about the months ahead. The confidence index for the next three months turned positive at 0.6 in May from -7.5 in April, while the 12-month outlook climbed to 27.8 from 19.5.

Businesses said their August outlook was supported by “better business growth prospects in manufacturing, construction and business process outsourcing sectors,” as well as “declining oil prices” and “higher public works spending.”

For the year-ahead horizon, respondents cited “easing inflation and oil price pressures,” the “possible resolution of the Middle East conflict” and “recovery in investor confidence.”

Operational indicators also showed some improvement. The financial condition index narrowed to -25.7 from -35.5, while the credit access index improved to -7.3 from -9.9.

Average capacity utilization in industry and construction rose to 70.5 percent from 69.9 percent. Employment prospects strengthened, with the 12-month employment outlook index rising to 20.4 from 9.5, although the share of industry firms with expansion plans fell to 11.8 percent from 19 percent.

Still, firms flagged persistent headwinds, including “stiff domestic competition, insufficient demand, high interest rates and elevated oil prices due to the Middle East conflict.”

Businesses also expect inflation, borrowing costs and the peso-dollar rate to remain under pressure. Year-ahead inflation expectations jumped to 5.9 percent from 4.2 percent, above the BSP’s two to four percent target.

On the household side, the BSP’s Consumer Expectations Survey (CES) showed sentiment worsened further in the second quarter.

The overall consumer confidence index fell to -42 in the second quarter from -15.8 in the first quarter.

Consumers were more pessimistic due to “higher fuel and food inflation due to the Middle East conflict,” “graft and corruption in the government” and “insufficient government policies and programs to cushion the impact of rising prices.”

Consumer sentiment for the next quarter also turned negative at -16.3 from 1.8, while the 12-month outlook eased to -5.5 from 0.2.

Households were also less inclined to save or borrow and more reluctant to buy big-ticket items.

The BSP said “households are prioritizing essential goods while cutting back on discretionary purchases as they become less optimistic about their financial situation.”

Even so, consumers still expect inflation to rise, with year-ahead inflation expectations inching up to 3.3 percent from 2.7 percent.

The BES was conducted from May 5 to 31 among 502 firms nationwide, while the second-quarter CES was carried out from April 6 to 18, covering 5,503 households across the country.