Philippines: Factory activity hits 7-month high in January

MANILA, Philippines —  The country’s manufacturing sector had a good start to the year as it continued to grow, hitting a seven-month high in January due to stronger demand for goods.

In a report released yesterday, international market intelligence firm S&P Global said the purchasing managers’ index (PMI) in the Philippines rose to 53.5 in January from 53.1 in December.

A reading above 50 indicates an overall increase, while below 50 denotes a decline.

The PMI is based on a survey of around 400 manufacturers and covers the following: new orders, output, employment, suppliers’ delivery times and stocks of purchases.

“Operating conditions across the Filipino manufacturing sector improved solidly during January, according to the latest PMI data. Sharp upturns were noted in both output and new orders, as panelists cited increased demand for Filipino manufactured goods,” S&P Global economist Maryam Baluch said.

S&P Global said manufacturing output increased for the fifth month running, while new orders rose at a faster pace in January as foreign demand for goods made in the Philippines picked up.

“Growing international client numbers and stronger demand from China helped revive exports for the first time in 11 months,” S&P Global said.

S&P Global said the increase in manufacturers’ buying activity was also among the fastest on record, showing firms’ willingness to meet the rising demand for goods.

Despite stronger demand, no rapid increase was seen in manufacturers’ operating expenses and instead, cost pressures moderated further in January.

Baluch said the data show the central bank’s aggressive monetary tightening has been effective, with further signs of easing price pressures seen in January.

“Additionally, supply chain pressures also eased further, with panelists citing that improved infrastructure, more vendors and lifting of port restrictions helped with delivery times,” she said.

While strong demand led to an increase in business requirements, S&P Global said this did not translate to hiring more people in the manufacturing sector.

As the manufacturing sector continued its positive performance in January, close to two-thirds of firms expect higher output in the coming 12 months.

“Overall, strong domestic demand fed into higher optimism for the year ahead. Moreover, the lack of COVID restrictions, greater investment in new products and undertaking new projects aided hopes of a prosperous year for the Filipino manufacturing sector,” Baluch said.

Commenting on the latest PMI data, Rizal Commercial Banking Corp. chief economist Michael Ricafort said “the sustained improvement in the local manufacturing PMI is a good signal, as one of the major sources of economic growth, despite after the seasonal increase in business/economic activities during the holiday season toward the end of 2022.”

In the coming months, he said risk factors that could affect manufacturing growth are higher prices or inflation, rising interest rates that would increase firms’ borrowing costs for new investments or expansion, a recession in the US, a surge in new COVID cases in China, as well as continued conflict between Russia and Ukraine.