Business owners and executives believe the country’s economy will improve in the second quarter due to midterm elections and consumer activities during the summer season.

Based on its survey in the first quarter of the year, the Bangko Sentral ng Pilipinas (BSP) on Friday reported the confidence index (CI) on the economy increased to 45.4 percent from 40.3 percent it recorded in the last quarter of 2024.

In contrast, more firms feel less upbeat in the first quarter, with a lower CI of 31.2 percent from 44.5 percent.

The BSP said a major factor is the weaker appetite for household consumption following multiple spending in the last Christmas season.

BSP said firms’ optimism for the next quarter comes from higher demand for goods and services for election-related and summer-related activities, continued growth in economic fundamentals, and desire for business expansions.

For the next 12 months, firms maintain their optimism, with a steady CI of 56.4 percent.

However, the BSP said the industry sector feels less upbeat for the second quarter and the next 12 months, especially those engaged in manufacturing and mining which have a weaker appetite for expansion compared to firms providing electricity, gas, water and agricultural goods.

New projects to stimulate construction

In the longer term, construction firms expect more revenues due to the awarding of new projects, new investment opportunities, lower inflation and a stronger peso.

Bank of the Philippine Islands chief economist Jun Neri said the country’s data centers and tourism could see more foreign investments and revenues which could compensate for the economic losses from the government ban on Philippine offshore gaming operators.

BPI analyses show data centers in the Philippines could increase capacity by 1,364 megawatts in the next five years, with the highest use in Metro Manila and Cebu.

However, wholesale and retail trade feel less upbeat as they see stiffer competition and inadequate working capital.

Citi’s head for South Asia Amol Gupte said US President Donald Trump’s high tariffs on Chinese goods and China’s moderate economic growth will unleash attractive products to other markets.

“China will then have extra capacity that will go to other markets, providing them with petrochemicals, electric vehicles and anything else,” he said in a media briefing on Friday in Makati City.

“A country affected by Trump’s tariff will export more goods to the European Union but China will also do that. But China will produce high quantity and high-quality goods at lower prices,” Gupte continued.

Given the mixed sentiments from various industries, the BSP said firms plan to hire new workers moderately in the next quarter, before expanding their labor force more aggressively in the next 12 months.

In terms of inflation, firms generally expect it to accelerate in the next quarter toward an average rate of 3.3 percent and 3.4 percent in the next 12 months due to higher fuel prices, weaker peso against the US dollar, and supply chain disruptions.

However, these forecasts still fall within the BSP target of 2 percent to 4 percent. For the foreign exchange rates, firms project the peso to depreciate against the US dollar at P58.41 per $1 in the next quarter from P58.22 per $1 in the first quarter and at P58.52 per $1 in the next 12 months.