By Justine Irish D. Tabile, Senior Reporter
PHILIPPINE FACTORY activity continued to expand in June amid stronger output and new orders, S&P Global said on Wednesday.
S&P Global Philippines Manufacturing Purchasing Managers’ Index (PMI) inched up to 50.9 in June from 50.8 in May, signaling a second consecutive month of modest improvement in operating conditions across the country’s goods-producing sector.
A PMI reading above 50 denotes better operating conditions than in the preceding month, while a reading below 50 shows deterioration.
“Manufacturing conditions in the Philippines continued to improve in June, building on the tentative recovery observed in May as the sector regained footing following disruptions linked to the war in the Middle East,” Maryam Baluch, an economist at S&P Global Market Intelligence, said in the report.
The Philippines’ June PMI also exceeded the Association of Southeast Asian Nations’ average of 50.5, although the regional reading eased from 51.5 in May.
The Philippines had the third best PMI reading in June, after Vietnam’s 51.8 (from 52.8) and Thailand’s 53.6 (from 52.6).
The country was ahead of Malaysia which had a PMI of 50.7 (from 49.9), Myanmar with 47.4 (from 49.3) and Indonesia with 46.9 (from 50).
S&P Global said Philippine manufacturers saw output and new orders grow for a second straight month. However, the increase in new orders strengthened slightly, while production growth eased in June.
“According to anecdotal evidence, where firms reported a rise in output, this was supported by growth in new orders, which in turn was underpinned by improved underlying demand trends and new client wins,” it said.
With the rise in new orders, S&P Global said Philippine manufacturers boosted purchases of additional raw materials and semi-finished items for the first time in four months. The increase in purchasing activity was marginal, but helped firms maintain their inventory of inputs.
Ms. Baluch also noted a more stable employment picture in the Philippines in June.
“Filipino manufacturers recorded unchanged staffing levels in June, marking a stabilization compared with job shedding seen in April and May,” she said. “Moreover, signs of renewed pressure on capacity, as indicated by a fresh rise in backlogs, suggests potential for future recruitment.”
S&P Global also noted there were signs of recovery in supply-chain disruption in June, as firms reported a “modest deterioration in vendor performance.”
Ms. Baluch said inflationary pressures started to ease in June after cost burdens increased at the weakest pace in four months. However, sharp increases in costs in April and May continued to weigh on manufacturers’ sentiment.
S&P Global said manufacturers remained optimistic, citing expectations of stronger demand, new product launches, and expansion into new markets.
However, overall business confidence fell to its lowest level since January, which Ms. Baluch said indicates that firms are cautious about the outlook.
John Paolo R. Rivera, a senior research fellow at the Philippine Institute for Development Studies, said the expansion in June reflects resilient domestic demand, gradual improvements in supply conditions and continued business activity despite a challenging external environment.
“If inflation continues to ease, it should help sustain manufacturing growth by lowering cost pressures and supporting household purchasing power. But I expect the expansion to remain modest rather than robust,” he told BusinessWorld.
Inflation eased to 6.8% in May from 7.2% in April, remaining above the central bank’s 2-4% target but closer to its 6.4% full-year forecast.
The Bangko Sentral ng Pilipinas said June inflation could ease further to as low as 6%, projecting last month’s print to settle within the 6%-7% range.
Mr. Rivera said the manufacturing sector’s outlook will still depend on external demand, oil prices, foreign exchange rate movements, financing costs, and the pace of infrastructure spending.
“Sustained improvements in these areas would provide a stronger foundation for manufacturing growth in the coming months,” he added.
Federation of Philippine Industries Chair Elizabeth H. Lee said business confidence remains subdued as firms continue to grapple with global uncertainties, supply-chain risks and higher input costs.
“We have two months of expansion, and we are looking forward to a stronger positive trend given that the production volume also was relatively resilient with a positive 12% growth in April,” she added.
However, Ms. Lee said recent cost pressures are being compounded by tighter financing conditions following recent policy rate hikes, as well as the recent P85 wage increase for Metro Manila workers.
“June’s PMI uptick shows Philippine manufacturing can still grow under pressure. However, sustaining that growth means supporting workers while preserving businesses’ ability to invest, employ, and compete. We cannot treat one factor in isolation,” she added.
