HEADWINDS dampened both consumer and business sentiment in the second quarter, the Bangko Sentral ng Pilipinas (BSP) reported on Friday, and outlooks for the next three months also worsened.

Business confidence also weakened for the next 12 months, but that for consumers was marginally more bullish, results of a central bank survey showed.

The confidence index (CI) for confidence index for consumers worsened to -20.5 percent for the second quarter from -10.9 percent three months earlier. The business CI, meanwhile, declined to 32.1 percent from 33.1 percent.

A positive result means that optimists outnumber pessimists. The reverse applies with regard to negative CIs.

Weaker consumer confidence stemmed from concerns about rising prices, higher expenses, lower income, fewer jobs and doubts about government policies on inflation, traffic, transportation, aid and employment.

Business sentiment, meanwhile, declined due to concerns about weaker demand for goods and services, rising oil prices from international conflicts, reduced business activity from El Niño's extreme weather and persistent inflation affecting consumer spending.

The CI for consumers for the next three months turned negative at -0.4 percent from 2.7 percent. For the year ahead, however, the index picked up to 13.5 percent from 13.4 percent.

The pessimism for the next quarter stemmed from expectations of faster price increases, higher household expenses, lower income and fewer job opportunities.

For businesses, the CI for the third quarter and next year declined to 43.7 percent and 56.5 percent from 48.1 percent and 60.8 percent, respectively.

This was attributed to expected reduced demand for hardware, construction materials, food supplements and medical services, alongside higher inflation, the rainy season affecting operations, slower economic growth and impact from international conflicts.

Looking further ahead, the cautious business sentiment was said to be driven by weaker demand for hardware, construction supplies, poultry, dining and leisure activities, intense global competition, concerns over conflicts in Gaza and Ukraine, and ongoing pressure from rising food prices, notably rice.

With regard to the country's economic condition, family financial situation and family income, consumers were also less pessimistic in the second quarter: -38.8 percent from -22.9 percent, -17.1 percent from -6.5 percent and -3.5 percent from -3.2 percent, respectively.

Results for the third quarter also worsened with regard to the country's economic condition, family financial situation and family income: -7.7 percent from -4.3 percent, 1.4 percent from 5.4 percent and 5.2 percent from 7.0 percent, respectively.

For the year ahead, consumers are only worried about the country's economic condition, with the CI dropping to 3.7 percent from 6.7 percent.

Those for family financial situation and family income improved to 15.7 percent and 20.9 percent from 15.1 percent and 18.3 percent, respectively.

By business sector, meanwhile, second-quarter sentiment was less upbeat in construction (35.2 percent from 39.7 percent), services (36.5 percent from 29.1 percent), but rose for wholesale and retail (37.2 percent from 32.6 percent) and industry (30.3 percent from 26.4 percent).

"The business sentiment for Q3 2024 was less optimistic across all sectors, except for the wholesale and retail trade sector whose sentiment was more buoyant," the BSP said.

"Likewise, for the next 12 months, the outlook of businesses across all sectors was less upbeat, except for the construction sector whose outlook was more favorable for the said period," it added.

Firms anticipate a challenging financial environment and restricted credit access in the second quarter. Expectations included tighter cash positions and deteriorating financial conditions, along with continued limited access to credit.

They also expect the peso to weaken against the US dollar in the second and third quarters, but strengthen over the next 12 months.

Inflation and borrowing rates were seen rising in both quarters, along with stronger inflation expectations, and more firms predicted higher inflation compared to the first three months of 2024.

Company forecasts pointed to inflation rates of 4.3 percent in the second quarter and 4.4 percent in the next quarter, and 4.5 percent over the next 12 months, all surpassing the central bank's 2.0- to 4.0-percent target.

As for consumers, sentiment on buying big-ticket items was more pessimistic in the second quarter as the CI fell to -64.5 percent from -62.6 percent.

The percentage of households taking loans decreased slightly to 24.6 percent, down from 24.9 percent in the previous quarter, while households with savings also dropped to 31.4 percent from 33.5 percent.

Consumers expect unemployment to potentially rise and the peso to depreciate against the US dollar in the second and third quarter, and in the next 12 months.

Meanwhile, households anticipate a faster increase in interest rates in the second quarter, followed by a slower pace in the next three months and the subsequent 12 months.

Inflation is also expected to increase, albeit more moderately, reaching an average of 5.5 percent over the next year and also surpassing the BSP's target range.

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