July factory output rises

Manufacturing grew for the second straight month, although softer in July amid a prolonged pandemic, which continued to diminish both domestic and global demand.

London-based global information provider IHS Markit Ltd. on Monday reported the Philippines’ purchasing managers’ index (PMI) last month eased to 50.4 from 50.8 in June, even as it remained above the 50 level, which meant year-on-year expansion in manufacturing activities.

IHS Markit said there were fewer jobs shed in July—the slowest pace since March—while manufacturers “continued to add to their pre- and post-production inventory holdings in anticipation of greater demand.”

However, factories’ output and new orders declined year-on-year last month, IHS Markit said.

“Although the Philippines’ manufacturing sector recorded another improvement in operating conditions during July, latest data revealed domestic demand and production levels were still impacted by the pandemic,” said Shreeya Patel, economist of IHS Markit.

Patel noted that COVID-19 infections in the Philippines recently moderated compared to early this year, “but are far from under control, causing some restrictions to persist.”

“Encouragingly, vaccination efforts have provided a boost to the future outlook, in turn prompting input-buying and rising stock volumes. Employment levels fell only marginally despite sustained declines in production. Moreover, anecdotal evidence suggested that this was mostly the nonreplacement of voluntary leavers rather than redundancies,” she said.

“Nevertheless, domestic demand must improve throughout the second half of the year to help underpin growth in 2021,” Patel added.

IHS Markit nonetheless pointed to upward input cost pressures due to “raw material shortages and the introduction of value-added tax to some goods,” referring to the recent 12-percent levy slapped on some exporters’ locally sourced purchases.

While the Bureau of Internal Revenue late last month suspended the implementation of this regulation, IHS Markit said “firms continued to raise their selling prices.”

“The rate of inflation was sharp, despite moderating for the third-month running,” IHS Markit said.

In Asean, the Philippines bucked the trend as five of the seven countries whose PMI was being monitored by IHS Markit saw their July indices contract.

IHS Markit blamed the PMI slump in Malaysia, Myanmar, Indonesia, Thailand and Vietnam mainly on rising coronavirus cases in these neighboring countries.

However, Miguel Chanco, senior Asia economist of Pantheon Macroeconomics, warned that Metro Manila’s revert to the most stringent enhanced community quarantine on Aug. 6 to Aug. 20 may bring the Philippines’ PMI back to negative territory, as what happened in April and May.

In a separate report, Chanco said the PMI would “likely [enter] into the red this month, in view of the pre-emptive restrictions the government will be instituting to mute the potential spike in Delta cases.” INQ