Manufacturing activity in the Philippines eased to its slowest pace in four months in July due to the weakening of new orders and production output, S&P Global said on Thursday.
The latest S&P Global Philippines Manufacturing Purchasing Managers’ Index (PMI), which measures the country’s manufacturing output, further fell to 51.2 in July from 51.3 in the previous month.
This marked the 11th straight month, however, that the index settled above the 50 threshold that separates growth from contraction.
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A PMI reading above 50 indicates improved operating conditions compared with the previous month, while a reading below 50 signifies a decline.
Despite the slowdown, the Philippines’ PMI reading in June was still the third fastest among six Association of Southeast Asian Nations countries, trailing only Vietnam at 54.7 and Thailand at 52.8. However, this was slower than the region’s average growth of 51.6.
S&P Global said the country’s manufacturing sector signaled a modest growth for the second semester as new orders and output expanded, prompting firms to increase their purchasing activity and hire more staff for the first time in three months.
READ: PH manufacturing gauge hits 5-month high
Companies also built up their inventories to meet higher demand.
“Though in both cases, the rates of increase were weaker than their respective long-run averages, thereby indicating relatively subdued growth across the sector,” Maryam Baluch, economist at S&P Global Market Intelligence said in a report.
Sluggish offshore demand
S&P Global attributed the weaker production output to longer supplier delivery times, especially due to port congestion.
Despite the slowdown, demand in the manufacturing sector improved. New orders rose faster than June’s five-month low, but demand from overseas markets remained modest and cooling.
Meanwhile, manufacturers of local-made goods increased their workers due to a stronger rise in new orders. July saw the first growth in employment since April, although at a slower pace.
For the next 12 months, manufacturers in the country remain optimistic of the sector. However, some firms remain cautious of the demand environment.
“Nonetheless, a historically muted inflationary environment, as indicated by the PMI price gauges, could open the door to policy rate cuts. Easing financial conditions should help solidify and strengthen growth in the coming months. Moreover, sustained expansions in purchasing activity and the renewed uptick in workforce numbers, indicate that goods producers are likely banking on the star strengthening of demand conditions in the coming months,” Baluch added.