PH manufacturing ends 2021 with growth, but Omicron still a threat in 2022

MANILA, Philippines—The Philippines’ manufacturing sector ended 2021 with a nine-month high purchasing managers’ index (PMI) of 51.8 in December, following month-on-month output growth unseen in previous months.

However, global information provider IHS Markit, which releases the monthly PMI report, on Monday (Jan. 3) warned that the worst was not yet over for domestic manufacturers as risks linger from the global spread of the Omicron strain of SARS Cov2, the virus that causes COVID-19.

Last month’s PMI — a proxy for the overall performance of the manufacturing sector — inched up from 51.7 in November 2021.

An index above 50 meant month-on-month expansion in manufacturing activities, from input sourcing to sales of finished goods.

“The improvement was partly driven by a quicker rise in new orders received by Filipino manufacturers. The overall rate of growth was modest with [firms] continuing to highlight favorable domestic demand conditions,” IHS Markit said in its report.

Traditionally robust consumer spending amid the Christmas holiday season, coupled with easing of movement restrictions, were expected to help grow gross domestic product (GDP) by 5 to 5.5 percent for the entire 2021, with fourth-quarter expansion seen by economic managers at about 7 to 8 percent year-on-year.

However, new export orders “fell sharply” in December, IHS Markit said, due “to tighter restrictions in international markets, linked to the Omicron variant,” which was said to spread faster although causing milder infection, especially among the unvaccinated.

IHS Markit said December’s production increased month-on-month for the first time since March 2021, although at “only a slight pace.”

“While some firms noted an improvement in domestic demand, others mentioned that raw-material scarcity stymied growth,” IHS Markit said, referring to global supply-chain constraints aggravated by reimposed pandemic restrictions across trading borders, especially where infections were high.

“Widespread reports of material scarcity continued in December, with [manufacturers] again turning to advance ordering strategies,” IHS Markit said.

“Anticipation of greater demand and future price hikes also encouraged firms to stockpile… Buying activity rose at the quickest rate for six months while stocks of purchases expanded for the fourth month running,” it added.

Scarce raw materials jacked up their prices, although input inflation was a three-month low, IHS Markit added. “Firms chose to pass on part of the burden to clients through another rise in output charges, with the rate of increase sharp by historical standards.”

Also, IHS Markit said Philippine manufacturing firms continued to shed workers, although the rate of last month’s job cuts was among the slowest during the past 22 months when the prolonged COVID-19 pandemic battered employment.

“Looking ahead, firms were upbeat about their output expectations for the next 12 months. Sentiment improved to the strongest since January 2020, with firms foreseeing higher customer numbers and a return to normality in 2022,” IHS Markit said.

But IHS Markit economist Shreeya Patel cautioned that “the Omicron variant will almost certainly hit the Philippines’ manufacturing sector, and in more ways than one.”

“Supply-side issues are likely to persist while case numbers and input price inflation could climb further as we head into the new year,” Patel said. Metro Manila, for instance, reverted to a-notch stricter alert level 3 restrictions on Monday amid a renewed surge in COVID-19 cases post-Christmas holidays.

TSB