Business confidence deteriorated further in April as geopolitical hostilities in the Middle East and elevated global oil prices stoked fears of persistent inflation, prompting companies to aggressively scale back their capital expenditure plans.

According to the latest business expectations survey (BES) released by the Bangko Sentral ng Pilipinas (BSP) on Friday, May 29, the business confidence index plunged to negative 35.8 percent from negative 24.3 percent in March.

The deeper dive into negative territory indicates that pessimistic executives increasingly outnumber their optimistic counterparts.

Companies cited the prolonged Middle East conflict and elevated oil prices as the primary catalysts for the gloom, fearing that higher inflation will continue to raise operating costs and erode the purchasing power of consumers.

Despite the immediate pessimism, the outlook for both the near term (July 2026) and the medium term (April 2027) showed signs of improvement.

In particular, the quarter-ahead CI climbed to -7.5 percent from -17.3 percent, while the year-ahead CI increased to 19.5 percent from 11.7 percent. Firms pointed to the start of the academic year and anticipated demand for BPO and construction services as reasons for this tempered optimism.

However, this hope is being overshadowed by a significant retreat in investment activity.

Industry sector expansion plans moderated sharply, with the share of firms planning to expand for the next three months dropping to 14 percent from 28.8 percent in the previous month.

For the next 12 months, expansion plans fell to 19 percent from 30.7 percent. Businesses attributed this caution to “heightened demand uncertainty” linked to the geopolitical situation.

Internal financial constraints are further hampering operations. The financial condition index declined to -35.5 percent, while the credit access index further decreased to -9.9 percent, indicating that firms expect tighter cash positions and more difficult access to external lending.

This financial pressure was reflected in industrial productivity, as the average capacity utilization (ACU) rate fell to 69.9 percent from 73.1 percent in March.

On the labor front, there was a modest reprieve as hiring intentions for the next three months improved, with the index turning positive at 6.1 percent from a pessimistic tone in March. The 12-month hiring outlook remained favorable but steady at 9.5 percent.

On prices, business inflation expectations remained settled above the BSP’s four percent tolerance ceiling, with firms anticipating an inflation rate of 4.2 percent April next year.

Apart from the Middle East war, major business constraints identified by respondents included domestic competition, weak demand, and high interest rates. (Derco Rosal)