Manufacturing activity falters to 3-month low due to Middle East crisis

MANILA, Philippines — The Philippine manufacturing sector lost momentum in March as the outbreak of war in the Middle East dampened demand for exports. 

S&P Global’s survey of 400 firms showed that the country’s purchasing managers’ index (PMI) fell to a three-month low of 51.3 in March from 54.6 in February. 

The previous month’s PMI was the sector’s strongest performance since November 2017.

READ: Philippine manufacturing activity climbed to 8-yr high in Feb

While the March reading remained above the 50-point threshold separating growth from contraction, it marked the first index decline since December, with S&P noting a “loss of momentum in new order growth.”

“The war in the Middle East weighed on the performance of the Philippine manufacturing sector, March PMI data showed. 

With the vast majority of the country’s oil supply coming from war-torn Gulf countries, President Marcos has declared a national energy emergency.

READ: Marcos declares state of national energy emergency

“Filipino manufacturers are exposed to shocks in oil and fuel prices rippling through global markets, as signaled by notable hikes in costs and charges, alongside softer demand conditions,” said Maryam Baluch, economist at S&P Global Market Intelligence.

Weakest since December

According to S&P, weakened demand due to the Middle East war led to a decline in new export sales, which in turn weighed on the growth of new orders.

The slowdown in demand, compounded by the energy shock, prompted firms to adjust production levels and pause purchasing activity. As such, factory output turned out to be the weakest since December.

Employment levels continued to grow, but at a marginal and weak pace.

“The duration and intensity of the war will directly impact the sector’s trajectory in the coming months, as inflationary pressures constrain sales and pricing power,” Baluch added.

John Paolo Rivera, senior research fellow at the Philippine Institute of Development Studies, warned that the Middle East war could disrupt the manufacturing sector’s momentum.

”Given Middle East tensions, there is a risk that PMI could ease further in the coming months, particularly if higher fuel and shipping costs continue to affect production and logistics,” he said.

READ: PH to negotiate safe Strait of Hormuz passage with Iran

Greater optimism

Even so, manufacturers remain confident in improved production levels for the year after their optimism level rose to a four-month high.

“However, as long as domestic demand remains stable, the sector should still stay in expansion territory but at a slower pace,” Rivera added. 

Meanwhile, Ateneo de Manila University economist Leonardo Lanzona said it was inevitable for factory activity to slow, and the PMI may settle around 52 to 53 by mid-year.

“What the war does is compress that timeline and add a cost-push inflation dimension that pure demand softening alone wouldn’t have generated. The Middle East war merely quickened the inevitable retreat,” he said. INQ