Philippines’ manufacturing activity improved in April as output and new orders picked up the pace on both the local and foreign fronts even as inflation remains elevated, according to an IHS Markit survey conducted for Nikkei.
The Nikkei Philippines Manufacturing Purchasing Managers’ Index rose to 52.7 in April from 51.5 in March to be the highest level for the year.
“The recent upturn of the Philippines manufacturing sector was lifted by strengthening demand conditions at the start of the second quarter. Order book growth accelerated noticeably to a four-month high, which was accompanied by faster output expansion,” Nikkei said in its report.
“As a result, Filipino goods producers raised employment levels and scaled up purchasing activity. Inventories also increased, though supply chains came under pressure. Optimism remained high, as did inflationary pressures,” it added.
It noted that domestic client demand was the fastest since December, while orders from abroad was the highest in 16 months.
Nikkei said that overall inout costs rose over higher prices paid for fuel, industrial metal, sugar and paper, as well as a weaker exchange rate and the new excise taxes also pushed input prices higher.
Republic Act No. 10963 — or the Tax Reform for Acceleration and Inclusion (TRAIN) — took effect on Jan. 1, which reduced personal income, estate and donors tax rates, but removed some value-added tax exemptions; hiked excise tax rates for automobiles, minerals, tobacco and fuel; as well as imposed new excise levies on sugar-sweetened beverages and cosmetic procedures.
“As a consequence, the rate of inflation remained sharp and well above its historical average, though slower than the survey-record pace in March. In response, firms passed on higher costs to their clients by again raising selling prices. The pace of charge inflation was the second-fastest in the survey history,” the report read.
IHS Principal Economist Bernard Aw commented on the report, saying:“The Philippines manufacturing sector started the second quarter on a robust note with growth in both output and new orders strengthening. First quarter manufacturing expansion was affected by the January rollout of the new excise taxes, but April data suggests that demand has since adjusted to these higher levies.”
“However, higher excise taxes continued to be felt through the pricing mechanism. While easing from the survey-record rate in March, input cost inflation remained elevated, not least because of a weak exchange rate, supply shortages and suppliers’ price hikes. In most cases, firms were able to pass on some of the higher costs to their customers, but the pressure on profit margins remains marked,” he added.
“Overall, it’s clear that underlying demand has improved, partly supported by stronger export sales. With companies’ optimism remaining high, despite the dip in April, it looks likely that growth may well accelerate further in coming months.” — Elijah Joseph C. Tubayan

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