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PHL factory growth slows but tops peers

Posted on August 02, 2017

IMPROVEMENT of factory activity in the Philippines slowed at the start of this quarter as growth of output, new orders and exports weakened, even as the country bested Southeast Asian peers, according to the latest monthly survey which IHS Markit conducted for Nikkei, Inc.

The Nikkei Philippines Purchasing Managers’ Index (PMI) logged 52.8 in July, down from June’s 53.9.

“There were signs of softening demand in July,” the report read.

The manufacturing PMI consists of five sub-indices, with new orders having the biggest weight at 30%, followed by output (25%), employment (20%), supplier delivery times (15%) and stocks of purchases (10%). A reading above 50 suggests improvement in business conditions, while a score below that signals deterioration.

Vietnam was the only other Southeast Asian economy that improved that month, with a 51.7 reading that was still slower than June’s 52.5. The rest registered erosion in business conditions: Thailand posted 49.6; Myanmar, 49.1; Indonesia, 48.6; Malaysia, 48.3 and Singapore, 47.9.

“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,” the report read.

IHS Markit economist Bernard Aw said the weakening of improvement should be temporary given “elevated” business confidence.

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“The Philippines manufacturing economy started the third quarter on a softer note, but the slowdown is likely to be short-lived,” Mr. Aw said in a report.

“PMI survey data showed that while growth in output and new orders remained solid, both slowed from June,” he noted.

“However, business optimism remained elevated, suggesting that companies expect the pullback in business activity to be transient.”

This time, the protracted battle for Marawi City between government forces and Islamic militants and martial law which President Rodrigo R. Duterte consequently declared over all of Mindanao -- extended by Congress till yearend -- entered the picture to cast a pall over business sentiment.

“Anecdotal evidence suggested that marketing activity and new models underpinned the upturn, alongside higher demand for products such as electronics,” the report read.

“However, the martial law imposed on Mindanao had affected sales, according to surveyed firms.”

“Nonetheless, the outlook for the manufacturing sector remains optimistic, driven by buoyant business confidence and strong sales volumes.”

Sought for his projection for the months ahead, Mr. Aw replied via e-mail: “I expect the crisis to continue affecting these manufacturers’ businesses as long as the situation is unresolved.”

“However, as a whole, the robust growth seen across the Philippines manufacturing sector should continue over the coming months, according to forward-looking PMI indicators: expansion in total new orders for Filipino manufactured goods continued to be solid and confidence about future output remains elevated.” -- Elijah Joseph C. Tubayan