LOCAL business sentiment improved ahead of the war in the Middle East even as firms continued to cite stiff domestic competition, insufficient demand and high interest rates as major constraints, a Bangko Sentral ng Pilipinas (BSP) survey showed.
The confidence index in the central bank’s latest Business Expectations Survey (BES) surged to 8.2 percent in February from 0.9 percent a month earlier.
“Stronger business confidence in February 2026 was mainly due to expectations of higher income and sales supported by stronger demand for goods and services,” the central bank said.
Firms were said to have cited “better domestic economic conditions, including higher growth prospects and stable inflation, and improved investor confidence on the back of higher public infrastructure spending and sustained governance reforms.”
Despite the more upbeat sentiment, firms continued to report operational challenges. The survey showed that domestic competition remained the top constraint, cited by 70.0 percent of respondents, followed by insufficient demand at 33.2 percent and high interest rates at 20.5 percent.
Credit conditions also tightened during the month, with the credit access index turning more negative at -4.0 percent in February from -0.6 percent in January, indicating that more firms perceived tighter access to financing.
Meanwhile, the financial condition index remained negative, though it improved slightly to -15.2 percent from -19.2 percent previously, suggesting firms expected a less tight cash position.
Average capacity utilization in the industry and construction sectors likewise declined to 67.2 percent in February from 69.6 percent in January, driven by fewer firms operating at high capacity and more operating at medium levels.
Businesses, however, were more optimistic about economic conditions over both the near and longer term. The quarter-ahead confidence index rose to 37.4 percent from 33.3 percent while the outlook for the next 12 months jumped to 51.1 percent from 38.6 percent.
The BSP said firms expect stronger consumer demand, favorable weather conditions, and higher public works spending to support growth in the coming months.
For the year ahead, respondents anticipate stronger demand during peak and holiday seasons, improved productivity, and better economic prospects supported by government spending.
Hiring intentions also strengthened, pointing to resilient labor market conditions. The employment outlook index for the next three months increased to 27.2 percent from 11.3 percent, while the year-ahead hiring outlook rose to 30.0 percent from 23.3 percent.
However, the share of firms with expansion plans for the next three months declined to 11.6 percent from 14.1 percent while those planning expansion over the next 12 months dropped to 14.2 percent from 24.3 percent, reflecting cautious investment sentiment despite short-term optimism.
Inflation expectations remained well anchored, the BSP said. Firms projected inflation to average 2.3 percent in February, 2.5 percent in May and 2.7 percent over the next 12 months, all within the BSP’s target range.
The central bank acknowledged that the February survey was conducted before the onset of the Middle East war, adding that “sustained recovery in business confidence and stable inflation expectations will therefore depend on how long the conflict lasts and how it affects the domestic economy.”
“The monthly BES provides a more frequent assessment of business confidence,” it said.
“This enables the BSP to adjust its policy response more proactively to fast-changing domestic and international developments.”
