Philippine manufacturing slows in July, but still leads Asean
MANILA, Philippines – The imposition of military rule in Mindanao slowed growth in Philippine manufacturing in July, but it nonetheless remained the best performing in ASEAN, the latest reading of the Nikkei Philippines Manufacturing Purchasing Managers’ Index (PMI) showed.
The Nikkei Philippine Manufacturing PMI registered a lower reading of 52.8 in July, down from 53.9 in June, but it still reflected improvements in the business environment. A reading above 50 indicates economic expansion, while a reading below 50 points toward contruction.
Local factories registered a slower but still solid growth in output and new orders in July as export demand weakened, dragged by the volatile situation in Mindanao, said IHS Markit, the firm that collated data for the index.
“The Philippines manufacturing economy lost some momentum at the start of the third quarter. While still solid, growth rates in both output and new orders were slower than June. That led to hiring and input stocks growing at a more gradual pace. Export growth also weakened. However, business confidence remained buoyant, while inflationary pressures picked up,” said the report.
“Anecdotal evidence suggested that marketing activity and new models underpinned the upturn, alongside higher demand for products such as electronics. However, the martial law imposed on Mindanao (southern Philippines) had affected sales, according to surveyed firms,” it added.
Purchasing managers surveyed during the reference period also said there was a pullback in overseas demand from June, with new export orders rising at the slowest pace since February.
Due to slower growth in output and new orders, local manufacturers also slowed down on hiring new workers and purchase of inputs.
Manufacturers also felt the pinch of rising input costs brought about by the depreciation of the peso. To protect profit margins, companies implemented another round of price hikes.
IHS Markit economist Bernard Aw said, however, the slowdown in output and new orders would be short-lived.
“The Philippines manufacturing economy started the third quarter on a softer note but the slowdown is likely to be short-lived. PMI survey data showed that while growth in output and new orders remained solid, both slowed from June. However, business optimism remained elevated, suggesting that companies expect the pullback in business activity to be transient,” he said.
“However, there were concerns as to the situation in Southern Philippines, where martial law in Mindanao has been extended by the government until the end of the year. Surveyed firms mentioned that the Mindanao crisis affected sales. Nonetheless, the outlook for the manufacturing sector remains optimistic, driven by buoyant business confidence and strong sales volume,” he added.
Despite the slower growth in factory activity in the country, domestic manufacturing remains the best-performing in ASEAN.
Business conditions among Philippine factories were more improved in July compared with Vietnam that registered a PMI reading of 51.7.
Experiencing declining business conditions were the manufacturing sectors of Thailand which registered a PMI reading of 49.6; Myanmar, 49.1; Indonesia, 48.6; Malaysia, 48.3; and Singapore, 47.9.
The headline Nikkei ASEAN Manufacturing PMI registered a lower reading of 49.3 in July from 50.0 in June, the first time it deteriorated this year.
IHS Markit said falling output and new orders weighed on the headline PMI.
“July data saw more countries across the region reporting a decline in operating conditions: overall five nations indicated a deterioration in business conditions, up from three in June,” said the report.
Region-wise, weaker demand was not limited to the domestic market but foreign orders as well, said Aw.
“Weaker demand had an impact on production volumes and backlogs, which in turn harmed employment prospects. Moreover, business optimism remained below the historical average, reflecting uncertainties over manufacturing growth across the region,” he said.