The latest Business Expectations Survey (BES) of the BSP headlines optimism for the rest of the year and into next year. While current sentiment is negative at -8.4 percent, the outlook for the next three months (20.9 percent) and the next 12 months (26.5 percent) are surprisingly positive.
Government economic managers and BBM himself may seek solace in the headline highlighting optimism. But much of that declared optimism is nothing more than wishful thinking. Everyone had a bad year and hoping for a better future is a survival mechanism to keep one’s sanity.
Also, the BES only captures the opinions of companies that are still actively operating and large enough to be surveyed. What about the micro, small- and medium-sized enterprises (MSMEs) currently being crushed by high import costs, increased labor costs and expensive credit? Many have shut down or about to. They represent 99.63 percent of Philippine business establishments.
A significant part of that forward-looking optimism the BSP heralds is not driven by expectations of strong economic fundamentals. When corporate executives answer the BSP survey, they respond as corporate planners who must project growth to justify their budgets, protect their stock prices and keep their credit lines open.
For many businesses, 2026 has been a year of relentless, compounding shocks — a questionable budget, a peso plunge past P64, a freeze in infrastructure spending and 7.2 percent inflation. When asked how they feel about 2027 compared to 2026, many respondents select “better” simply because they hope the economy cannot be this bad much longer.
Corporate planners are adjusting their psychological baseline because conditions are currently so bad even a modest easing of inflation or a temporary political truce over the budget will look like a “recovery” relative to the extreme stress they are currently enduring.
From a corporate perspective, there is a big difference between expecting the environment to improve and designing your business to adapt.
When a firm expresses optimism for next year, they are probably saying: “We have accepted that P64 to a dollar, 5.5 percent interest rates and an unstable power supply are the permanent new normal. We have cut our overhead, paused our high-risk expansions and re-priced our products to survive in this toxic environment.”
Therefore, their reported optimism isn’t a prediction that the national budget mess will be resolved or that El Niño will be mild. It is a declaration that they believe their specific defensive strategies will hopefully keep them afloat despite those ongoing crises.
The gap between the deeply negative current-month sentiment (-8.4 percent) and the optimistic 12-month outlook (+26.5 percent) is the statistical manifestation of wishful thinking. Philippine businesses are wide awake to the economic storm hitting them today, but they are conditioning themselves to survive by hoping that tomorrow will bring some relief.
How grounded is that hope and wishful thinking to reality?
Start with the exchange rate.
The USD/PHP exchange rate threatening to hit the P65 level is a severe headwind unless you are running a BPO.
For the majority of businesses, a fast-weakening peso ruins near-term profitability as it feeds imported inflation. The Philippines is a net importer of fuel, wheat and industrial raw materials. A P64+ exchange rate automatically triggers second-round price increases across supply chains.
For most businesses looking at their balance sheets, this rate of peso depreciation behaves like a permanent tax increase on production.
Both the government and major conglomerates face increasing costs to service dollar-denominated debts, directly draining cash that would otherwise go to domestic investments.
The BPOs may have an advantage as the peso declines. But exporters, especially exporters of semiconductors, probably will feel little effect as their local value added in terms of labor is rather small.
OFW families may seem to be getting more in peso terms, but that’s an illusion.
An OFW sending $500 home generates significantly more pesos at a P64-to-the-dollar exchange rate than at P56. However, that extra peso liquidity is instantly absorbed by the 7.2 percent inflation at the grocery, the gas pump and utility bills.
All these expose the flaw in the “weak peso benefits the economy” argument. We are not a significant exporter of manufactured goods… not even of agricultural products. We are massive importers, especially of food.
Ultimately, the BSP-reported optimism reflects an expectation that the sectors benefiting from a weak peso will inject enough liquidity into the local market to keep consumer demand alive during the holiday season, preventing a total economic freeze.
Then there is El Niño. According to Chinabank’s economic simulations, a severe El Niño is projected to add up to 1.57 percentage points to headline inflation while knocking 0.81 percentage points off overall GDP growth. Because food carries a massive weight in the local consumer basket, rice supply problems risk pushing inflation past eight percent.
Maybe the expressed optimism in the BES also assumes macro projections that often fail. They are probably thinking government infrastructure spending will recover and function smoothly on a normal timeline.
The reality is that the current economic landscape for next year is shaping up to be a tighter, high-stress sequel to this year. Rather than a clean break into recovery, the budget gridlock, together with public anxiety over how public funds are being handled, makes a negative outlook certain.
The clash between the two houses of Congress over the P7.2-trillion 2027 national budget may result in a failure to pass the budget bill and force the government to operate on a re-enacted budget that freezes capital outlays. Government infrastructure expenditures, which are supposed to serve as the baseline fuel for GDP growth, will not happen on time.
The “optimism” in the BSP survey is less about anticipating a roaring economic expansion and more about survival adaptation.
Lackadaisical as ever, BBM promises more of the same for next year, and that leaves no room for optimism.
Boo Chanco’s email address is bchanco@gmail.com. Follow him on X @boochanco