Business sentiment nosedived in July amid persistent inflationary pressures arising from the Middle East conflict, the Bangko Sentral ng Pilipinas (BSP) reported.

In its latest Business Expectations Survey, the BSP said “renewed concerns over tensions in the Middle East, higher oil prices, and persistent inflationary pressures” caused the July Confidence Index (CI) to plummet to -20.3 percent from 0 percent in the previous month.

A negative CI indicates broader pessimism among respondents, with June’s 0 percent indicating neutral sentiment.

“Nonetheless, firms remained optimistic about business prospects for the next 12 months, albeit less so than in the previous survey. Firms expect economic activity to moderate and inflation to remain above the BSP’s 4 percent tolerance ceiling,” the central bank said, noting that fewer firms indicated plans to hire additional workers amid expectations of softer growth and elevated inflation.

July saw the fallout from deteriorating peace talks between the United States and Iran. The two countries had been scheduled to sign a preliminary peace agreement in June, but the talks quickly fell apart, resulting in renewed supply chain disruptions in the Strait of Hormuz, pushing domestic pump prices higher in the month.

The Middle East conflict remains at the forefront of concerns among Filipino firms, with the BSP’s survey in April showing a CI of -35.8 percent, the lowest on record, as headline inflation spiked to a three-year high of 7.2 percent.

The central bank shifted to a monthly BES this year, with the onset of the conflict in March causing the CI to plunge from 8.2 percent in February to -24.3 percent in March, a 32.5-percentage-point deterioration.

The BSP said business sentiment also weakened for the months ahead, with the CI for October falling to 3.7 percent from 18.8 percent, while the outlook for the next 12 months dropped to 29.4 percent from 42.4 percent.

Among firms reporting a weaker outlook, nearly 20 percent cited renewed tensions in the Middle East as a key concern, while 15.1 percent pointed to higher oil prices resulting from disruptions to fuel shipments through the Strait of Hormuz. Another 11.3 percent of respondents cited persistent inflation, which remained nearly seven times higher than the end-2025 level in July.

“Over the next 12 months, fewer firms indicated plans to hire additional workers amid expectations of softer growth and elevated inflation. Nevertheless, firms in the industry sector still reported plans to expand operations next year,” the BSP added.