Business sentiment in the Philippines took a hit in the first quarter of 2025, as the overall confidence index (CI) plunged to 31.2 percent from 44.5 percent in the previous quarter, according to the Bangko Sentral ng Pilipinas (BSP). Just a quarter earlier, the CI stood at its highest, at 44.5 percent, since September 2016 on expectations of increased demand and seasonal influences on business activities. But in the latest BSP survey, the survey reflected a reversal and heightened pessimism among the various businesses as fewer firms expressed optimism and more companies anticipated a challenging economic environment instead.
The drop in business confidence is largely attributed to concerns over a slowdown in demand for goods and services following the holiday season, as well as fears of a potential resurgence in inflation. These factors have led firms to adjust their outlook for Q1 2025, with many anticipating tighter financial conditions, lower capacity utilization, and limited credit access.
The construction sector, however, showed little change in optimism, remaining relatively stable compared to the previous quarter. Despite this, the broader business community, including exporters, dual-activity firms, and domestic-oriented businesses, reported a more cautious outlook for Q1 2025.
The survey also indicated expectations of a weaker peso and higher borrowing costs in the first half of 2025. Inflation expectations were also raised, with firms predicting a higher inflation rate in the near future, although within the National Government’s target range of 2.0-4.0 percent.
Despite the downbeat outlook for Q1 2025, business sentiment for Q2 and the next 12 months showed a more optimistic trend, with confidence improving in the second quarter and remaining steady for the year ahead. Nonetheless, the challenges faced in Q1 signal possible macroeconomic risks that may impact the Philippine economy’s recovery trajectory in the near term.
This development contrasted sharply against the outcome of the same survey in the final quarter of 2024 when the index was at its highest, at 44.5, since September 2016. This optimism was pushed in the main by the positive views then held by manufacturers to 34.4 percent versus only 26 percent, the retailers (42.5 percent from 32.3 percent) and by service providers (52.9 percent versus 36.7 percent). Also, the sentiment among the various constructors already weakened to 35.6 percent from 37.6 percent, according to the BSP.
The quarterly survey, conducted from 8 January to 1 March 2025, was based on responses from 1,527 firms nationwide, with a slightly lower response rate compared to the previous quarter.
