Manufacturing activity in the Philippines decelerated further in July, reaching the lowest reading in five months, as demand softens, according to an IHS Markit survey conducted for Nikkei.
The seasonally adjusted Nikkei Philippines Manufacturing Purchasing Managers’ Index (PMI) slid for the second consecutive month to 50.9 in July, from 52.9 logged in June, which indicated a “marginal improvement in the health of the sector.”
The country moved up to the second rank among select Association of Southeast Asian Nations (ASEAN) last month, behind Vietnam’s 54.9, from placing third in June–but still above the ASEAN average of 50.4.
“The Philippines manufacturing economy expanded further at the start of the second half of 2018, but at a weaker pace. Growth in both output and new orders slowed noticeably in July accompanied by a milder accumulation in input stocks,” the report read.
The report noted that new business intakes grew at the weakest pace in survey history despite export growth reaching a 19-month high, as it pointed to supposed input shortages amid high prices of raw materials.
“Slower sales led firms to scale back their production volumes. Output growth reached a six-month low. That said, there was anecdotal evidence that input shortages disrupted production activity,” it said.
“Inflationary pressures in the sector remained marked. Higher prices for raw materials, such as diesel, plastics and rice, a weaker peso and effects of the TRAIN regulations all contributed to input cost inflation, which remained well above that seen in recent years,” it added, referring to the Tax Reform for Acceleration and Inclusion law.
“Greater cost burdens led firms to raise selling prices further in July.”
The sustained inflationary pressure in July led business expectations to fall to its lowest level to date.
The Bangko Sentral ng Pilipinas made a 5.1-5.8% inflation forecast for July, which would come from a 5.2% print in the previous month. — Elijah Joseph C. Tubayan

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