Philippine business sentiment recovered sharply in June, with firms turning neutral on current economic conditions, according to the Bangko Sentral ng Pilipinas' (BSP) latest Business Expectations Survey.

The BSP said businesses became significantly more optimistic about the coming months amid expectations of lower oil and energy costs and stronger consumer spending. The survey showed the overall confidence index (CI) climbed to zero in June from -25.2 percent in May, indicating that optimistic and pessimistic businesses were broadly even.

“Over the next 12 months, firms expected business conditions to improve further despite concerns that inflation could breach the Bangko Sentral ng Pilipinas (BSP)’s 4-percent tolerance ceiling in 2027,” the BSP said.

“A large share of industry firms and firms across all sectors indicated plans to expand operations and increase hiring, respectively, both of which could support economic growth.”

The CI for the next three months jumped to 18.8 percent from 0.6 percent, while confidence for the next 12 months surged to 42.4 percent from 27.8 percent. A positive index indicates that optimists outnumber pessimists.

The BSP said businesses expected lower oil prices and energy costs to support increased economic activity in June. Firms also anticipated stronger consumer spending following the reopening of schools.

The June survey was conducted from 5 to 30 June and covered 515 companies nationwide, including 193 firms in Metro Manila and 322 outside the capital region. The survey period coincided with a significant easing of tensions in the Middle East, as the US and Iran were reportedly on the verge of reaching a peace agreement. The easing hostilities helped pull oil prices down from the highs seen over the previous two months.

However, the potential deal quickly collapsed, with the two nations exchanging strikes once again and renewed tensions carrying over into July. Domestic pump prices surged during the month after disruptions in the Strait of Hormuz intensified amid the conflict.

Despite the renewed geopolitical uncertainty, businesses remained upbeat about the longer-term outlook. A large share of industrial firms indicated plans to expand operations, while businesses across all sectors expected to increase hiring, developments that could provide additional support to economic growth.

The BSP said it continues to monitor developments in the Middle East and their potential effects on business and consumer sentiment, household spending and investment decisions.