Thailand
Philippines: Factory output slumps to 15-month low in August
MANILA, Philippines — The country’s manufacturing sector went back into contraction mode in August, posting its lowest output in 15 months, as the surge in cases due to the Delta variant prompted the reimposition of strict lockdown measures.
Market intelligence firm IHS Markit said the Philippines’ headline purchasing managers’ index (PMI) fell sharply to 46.4 in August from 50.4 in July.
The August headline index slid way below the neutral 50 mark that separates expansion from contraction.
The latest reading is the first contraction after three months of growth and the lowest recorded since 40.1 in May 2020.
The headline PMI provides a quick overview of the health of the manufacturing sector based on the weighted average of five indicators: new orders (30 percent weight), output (25 percent), job creation (20 percent), supplier delivery times (15 percent) and inventories (10 percent).
IHS Markit’s latest reading revealed the impact of the third round of the enhanced community quarantine in Metro Manila and nearby economic hubs that led to factory and business closures.
The more transmissible Delta variant continues to spread, with daily cases reaching a new record high of over 22,000 on Monday.
“The latest contraction in operating conditions in the Philippine manufacturing sector came as no surprise. Factories and their clients in Metro Manila once again paused their production lines in a bid to curb the spread of the new Delta variant,” IHS Markit economist Shreeya Patel said.
Output and new orders fell sharply, although the rates of decline were not as severe as those seen during the first ECQ last year.
Production volumes fell for the fifth month in a row while customer demand dipped as tighter restrictions on travel and the closure of businesses led clients to limit orders.
Production levels and new orders at the domestic front are still on a decline, while those from overseas markets returned to contraction after three months of increase.
Further, IHS Markit noted that firms continue to scale back on their hiring efforts, leading to the 18th consecutive month of contraction in employment largely due to factory shutdowns as well as relatively weak demand environment.
There was also a sharp decline in purchasing activity as businesses looked to recover costs and restructure stocks in line with weak demand. Pre and post-production inventory also fell, albeit moderately.
Another downside is that pressure remained on the supply chain due to tighter measures, port congestions and shortages that lengthened delivery times from suppliers, the worst since August of last year.
Materials shortages and delivery delays continue to result in higher input prices, with costs rising for 16 months now. This prompted firms to raise the prices of their products to pass on some of the cost burdens to customers.
With this, firms’ optimism about their overall prospects for higher production levels in the next 12 months fell to a four-month low in August, though still remained firmly in positive territory.
“Firms’ expectations toward the outlook remained optimistic owing to hopes that the latest downturn is only temporary. Looking at prices, easing input costs suggests that the sharp price pressures seen since the start of the year are starting to ease,” Patel said.
“As with all regions, vaccinations remain paramount to controlling the spread of the disease and the associated variants. Firms will hope shocks to the supply of vaccines are brought under control to prevent this being pushed back again,” she said.
Source: https://www.philstar.com/business/2021/09/02/2124163/factory-output-slumps-15-month-low-august