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Manufacturing growth in the Philippines gains pace in May

Staff Writer |
Growth in the Philippines manufacturing economy gained pace in the middle of the second quarter as demand conditions improved further.

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New business expansion picked up noticeably, encouraging factories to scale up production.

Increased demand lifted purchasing activity which, in turn, boosted inventories.

However, employment growth remained subdued, which was partially linked to a lack of capacity pressure.

Optimism remained elevated.

On the price front, cost pressures intensified.

Rising from 52.7 in April to 53.7 in May, the seasonally adjusted Nikkei Philippines Manufacturing Purchasing Managers’ Index (PMI) signalled a faster pace of growth for a third straight month.

The latest reading was the highest so far this year, marking a solid improvement in the health of the sector.

Survey data showed further signs of improvement in client demand in the wake of the tax reform measures, which were put into effect at the start of the year.

New business inflows grew at the fastest rate since November last year, even as export sales growth cooled.

The firmer pace of order book expansion supported firms’ decisions to ramp up production.

Output growth accelerated noticeably from April to reach the highest in five months.

Greater production requirements led firms to step up purchasing activity to ensure a sufficient amount of input materials.

The rate of buying reached a sixmonth high, resulting in stocks of purchases accumulating at a faster pace.

Post-production inventories were also up for a third straight month.

Suppliers faced difficulties coping with higher demand, as reflected in a further deterioration in vendor performance during May.

Survey evidence suggested a lack of raw materials, port congestions and poor traffic conditions contributed to delayed shipments.

However, stronger demand conditions failed to stretch operating capacity.

On the contrary, May data indicated a further drop in the level of unfinished work, stretching the trend of falling backlogs to well over two years.

The persistent lack of capacity pressure imposed no urgency on firms to boost hiring even as sales increase.

Employment growth remained marginal in May.

Furthermore, there were some reports of layoffs due to costsaving measures.

Input cost inflation intensified midway through the second quarter as a combination of factors, including supply shortages, a weaker peso, higher global commodity prices, and tax reforms, led to inflation.

As a result, firms raised selling prices again, with the rate of increase remaining solid, reflecting efforts to pass on higher costs to their customers.

Finally, business confidence remained elevated and improved during May.

The Future Output Index rose from the previous month to the joint-highest so far this year.

The majority of firms remained confident that product launches, new outlets, higher sales forecasts, promotional activity and increased productivity will drive output growth in the year over the coming 12 months.


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