Slower demand cools PH factory output growth

Factory output growth was muted in May as higher inflation and peso depreciation made raw materials more expensive, thus slowing demand, the Philippine Statistics Authority reported on Tuesday.

Preliminary results of the PSA’s latest Monthly Integrated Survey of Selected Industries showed that factory output, as measured by the Volume of Production Index, grew by 3.2 percent year-on-year in May.

READ: Factory output further slowed in June, says S&P

However, this was slower compared to the 6.3-percent growth logged in April and the 6.1-percent posted in the same period a year ago.

John Paolo Rivera, senior research fellow at Philippine Institute for Development Studies, said the slower factory output growth was mainly due to the easing demand fueled by recent inflationary pressures and continued weakening of peso against the greenback. Inflation in June moved at its slowest pace in four months to 3.7 percent, easing from 3.9 percent in the previous month amid slower increases in housing, water, electricity, gas and other fuels and transport items. Rising costs

“These contributed to making the raw materials and work-in-progress costlier, especially those that are being imported. Currency depreciation makes imported inputs to manufacturing more expensive,” Rivera said in a Viber message.

The production of fabricated metal products, except machinery and equipment, drove the downward trend in the annual growth with a 13.4- percent contraction in May from a 29.9-percent growth in April.

READ: Philippines’ factory output growth streak ends

Declines were also recorded in chemical and chemical products, decreasing by 11.7 percent from a growth of 16.6 percent in April. Likewise, manufacture of computer, electronic and optical products declined by 0.3 percent in May from a growth of 5.2 percent in the previous month.

Contraction

The report—which covers 22 major industries—shows 15 sectors recorded contraction while the remaining seven industries posted expansion during the month, led by the manufacturing of coke and refined petroleum products with 53.6 percent in May from 18.7 percent in the previous month.

The latest data can be compared to the June result of the S&P Global Philippines Manufacturing Purchasing Managers’ Index in which the Philippines’ factory output further slipped to 51.3 from 51.9 in May.

According to S&P Global, a “notable cooldown” was recorded in the growth of new orders in June, which indicated a weaker improvement in demand trends. Exports for local goods also eased to a three-month low in June. As demand softened, this allowed manufacturers to reduce their backlog at a faster rate in three months.

Meanwhile, its average capacity utilization, or the extent to which industry resources are used in manufacturing, averaged 75.5 percent in May, slightly lower than 75.3 percent in April. INQ