Manufacturing sector’s return to growth path expected

Manufacturing activities shrank for the second-straight month in May although global information provider IHS Markit Ltd. saw last month’s mild decline as a sign of the sector’s return to growth path despite inflationary pressures on production costs.

In a report on Tuesday, the London-based IHS Markit said the Philippines’ purchasing managers’ index (PMI) remained below 50 in May, which suggested a year-on-year decline in manufacturing activities. At 49.9, however, it was better than the 49 in April.

The revert to stricter COVID-19 quarantine in National Capital Region (NCR) Plus — Metro Manila plus the provinces of Bulacan, Cavite, Laguna and Rizal, which accounted for half of the economy — before March ended cut short the PMI expansion posted from January to March amid the then gradually easing restrictions in economic activities.

“A surge in COVID-19 cases and ECQ [enhanced community quarantine] measures last month forced the Philippine economy back into contraction territory. May PMI data will therefore be welcomed as it revealed a swift movement toward stabilization with some businesses already resuming their operations,” IHS Markit economist Shreeya Patel said in a statement.

“Softer declines in output and new orders signaled a step in the right direction, while a renewed increase in overseas demand also supported the sector,” Patel said.

“There are also signs manufacturers are dealing well with supply issues as safety stocks continued to be built, helping keep backlogs at bay for now,” Patel added.

However, Patel said high input prices posed a risk to manufacturing rebound during the near term.

“Transportation bottlenecks and limited material availability weighed somewhat on profit margins,” Patel noted.

Patel said these “strong inflationary pressures” had resulted in higher selling charges as well as job cuts as manufacturers sought to reduce their expenses amid the harder times wrought by the COVID-19 pandemic.

“Nevertheless, policymakers are working toward securing enough vaccines to inoculate a large proportion of the population. The rollout must gain momentum to prevent another tightening of measures and to encourage an economic recovery,” according to Patel.