Business confidence dips in Q3 2025, rebounds for Q4

Philippine businesses were less optimistic about the economy in the third quarter of 2025 due to seasonal slowdowns and external pressures, according to the Bangko Sentral ng Pilipinas.

The overall business confidence index (CI) dropped to 23.2 percent in Q3 2025 from 28.8 percent in Q2 2025, reflecting subdued sentiment during the so-called “ghost month” and the rainy season.

Respondents also cited global headwinds—including increased US tariffs, geopolitical tensions, and weaker foreign demand—as key drags on confidence.

Despite the dip in the current quarter, business sentiment for the fourth quarter rebounded strongly, with the CI climbing to 49.5 percent from 41.6 percent in the prior survey.

The outlook for the next 12 months moderated slightly, with CI at 48.1 percent versus 52.3 percent in the previous quarter, though optimism remained firmly in positive territory.

A positive CI indicates that more firms expect favorable business conditions than unfavorable ones.

“Firms attributed their optimism for Q4 2025 to higher consumer demand during the holiday season, more business activities, new product launches, and expansion plans,” the BSP noted.

Inflation expectations remained well anchored, with most firms forecasting that price levels would stay within the National Government’s 2.0 to 4.0 percent target band over the next year.

This expectation is critical in maintaining investment appetite and supporting employment growth across sectors.

The third-quarter BES revealed that 36.2 percent of firms expect inflation to average 3.0 percent over the next 12 months, slightly lower than the 3.1 percent forecast in the previous quarter.

Interest rate expectations also moderated, with 30.1 percent of respondents predicting stable borrowing costs in the near term.

The peso was expected to remain broadly stable, with 34.8 percent of businesses anticipating a steady exchange rate, up from 30.3 percent in the second quarter.

By sector, the confidence index declined in industry and services but improved in the wholesale and retail trade and construction sectors, which were supported by seasonal activities and infrastructure projects.

In the industry sector, the CI dropped to 17.5 percent from 21.3 percent due to expected production slowdowns during inclement weather and reduced export orders.

Services posted a lower CI of 23.6 percent, down from 30.0 percent in Q2 2025, while trade improved slightly to 25.9 percent, and construction rose to 42.3 percent from 40.4 percent.

Large firms remained the most optimistic with a CI of 27.0 percent, although this was lower than 33.0 percent in Q2 2025.

Confidence among small and medium enterprises also softened, posting CIs of 15.1 percent and 14.5 percent, respectively.

Business sentiment across all regions declined, but the National Capital Region (NCR) continued to report the highest confidence at 32.3 percent, followed by Balance Luzon at 22.1 percent, Visayas at 20.8 percent, and Mindanao at 15.5 percent.

Firms also reported stable access to credit, with 24.6 percent of respondents saying they had availed of loans, up from 23.7 percent in the previous quarter.

Among borrowers, 80.6 percent said they obtained credit from universal and commercial banks, while others sourced funding from thrift banks, rural banks, and government institutions.

Borrowing was primarily used for working capital, operational expansion, and inventory financing, reflecting cautious optimism in business strategies.

The share of firms planning to expand operations in the next quarter rose to 25.8 percent from 22.6 percent, with the industry sector leading intentions at 35.3 percent.

The percentage of businesses with hiring intentions also increased to 27.2 percent from 25.4 percent, driven by expected higher sales and new project pipelines.

The Q3 2025 BES, conducted from July 5 to August 15, covered 1,525 firms nationwide and serves as a vital forward-looking indicator for monetary policy and private sector planning.

The Q3 2025 BES serves as a barometer for future economic activity, guiding policy direction and helping businesses calibrate their investments, hiring plans, and pricing strategies in response to shifting market expectations.

While temporary seasonal and global factors softened Q3 sentiment, the strong rebound in the fourth-quarter outlook reflects underlying resilience in domestic demand and renewed business expansion plans.