PH manufacturing returning to life as economy further reopens

MANILA, Philippines—The Philippines’ purchasing managers’ index (PMI), which serves as a proxy for the manufacturing sector’s growth or decline, climbed to a seven-month high of 51 in October as the economy further reopened.

But London-based global information provider IHS Markit Ltd. on Tuesday (Nov. 2) warned that lack of inputs may deter manufacturing recovery amid global supply chain disruptions.

The October PMI, which was above 50 and meant overall expansion in manufacturing activities, was the highest since March, noted IHS Markit, which releases the monthly report.

“October PMI data signaled a slight pick-up in growth across the Philippines manufacturing sector,” said Shreeya Patel, IHS Markit economist, in a statement.

“Some restrictions continued to ease, and the demand environment showed tentative signs of improvement with new orders stabilizing after six months of decline,” Patel said.

“However, the goods-producing sector was yet again hit by delivery delays, material shortages and rising costs, which consequently inhibited output growth,” Patel added.

“Such pressures are likely to persist over the next few months, but a key concern comes from firms only partly able to pass on higher costs given the relatively weak demand environment,” Patel said.

IHS Markit said input costs in October soared to their highest level since March 2018, but manufacturers could only modestly pass these on to their customers in terms of prices of goods because demand has not returned to pre-pandemic level.

IHS Markit also pointed to contraction in production output faster than in September as a result of “material shortages and virus-related restrictions” coupled with “historically weak demand.”

“Raw material shortages and poor transportation conditions reportedly led to extensive delays. Lead times have now lengthened in each month since August 2019, with the latest deterioration among the sharpest,” IHS Markit said.

“In line with supply chain disruption, firms increased their input buying for the first time since July amid efforts to secure raw materials,” it said.

“Firms that raised their pre-production holdings mentioned that current pressures obtaining inputs, rising costs and expectations of greater demand encouraged stockpiling,” it added.

“Higher cost burdens were commonly linked to material shortages, especially for metals, packaging materials and oil,” IHS Markit said.

“There were also reports of rising transportation and energy costs,” it added, saying cost inflation was highest in March 2018.

But what partly improved last month’s PMI was a rise in orders despite a modest drop in global demand.

Job cuts were also fewer in October compared to September’s, although manufacturers continued to streamline their labor force for the 20th straight month, mostly through “voluntary” resignations, IHS Markit said.

For Patel, “after contracting sharply in 2020, the manufacturing sector is expected to grow by 19.1 percent in 2021.”

“Firms hope that demand conditions in both domestic and international markets improve, with looser restrictions likely to support greater customer demand,” Patel said.

Business confidence among surveyed firms rose to its highest level in three months, although still below pre-pandemic confidence levels.

Across Asean, PMI improved to 53.6 in October from 50 in September—the first increase since May after the region’s economies were battered by the more infectious Delta variant of SARS Cov2, the virus that causes COVID-19, according to a separate report by IHS Markit.

TSB