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Vietnam gains on PHL to top ASEAN PMI

Posted on March 02, 2017

FACTORIES in the Philippines capped a four-month growth slowdown in February, even as the pickup last month was overtaken by Vietnam’s performance that put that neighbor in the region’s lead, according to monthly surveys IHS Markit conducted for Nikkei, Inc.

“After a marked slowdown at the start of 2017, the Philippines manufacturing sector gathered momentum in February,” according to the report on the Nikkei Philippines Manufacturing Purchasing Managers’ Index (PMI) that bared a 53.6 reading that month.

That reading “signaled another solid improvement in the health of the sector,” coming from January 2017’s 52.7 that was the weakest, so far, since the Philippine survey began in January last year.

The manufacturing PMI consists of five sub-indices, with new orders having the biggest weight at 30%, followed by output (25%), employment (20%), suppliers’ delivery times (15%) and stocks of purchases (10%).

Data were compiled from replies to questionnaires sent to purchasing executives in over 400 industrial companies.

A PMI reading above 50 suggests improvement in business conditions, while a score below that signals deterioration.

The report said continued deceleration in Philippine factories’ production growth was offset by faster increases in new orders, employment and stocks of purchases.

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“Greater client demand and high business optimism saw Filipino factories continue to build stocks,” it noted.

The report also noted that “manufacturers were building more stocks (of finished goods) at a time when new orders were rising at a faster rate than production volumes.”

At the same time, surging production input costs led manufacturers “to raise selling prices at a survey record pace.”

The country’s inflation rate has been picking up since September last year from 16 months of 0-1% levels, and the official February rate scheduled to be reported on March 7 is expected by the central bank to fall within a 3.1-3.9% range that, in turn, will be the fastest since a 3.7% clocked in November 2014.

“The recent pickup in input price inflation surged in February, with the degree of increase reaching its highest mark since the series started in January 2016,” the report noted.

“There was evidence of higher prices for imported raw materials, such as metal and oil... with a number of companies blaming the weakening of the peso against the US dollar for greater imported inflation,” it added of the local currency, which has been hitting its weakest levels against the greenback in over a decade.

“This resulted in companies raising factory gate prices to the greatest extent in the series history.”

Overall business confidence among survey respondents stayed “elevated” in February, the report added, noting that there were more respondents (22.6%) in February than in January (21%) who said they expected similar production volumes over the next 12 months.

“Robust client demand helped maintain high business confidence for output in the next 12 months,” it noted, explaining that “[c]ompanies highlighted strong market demand, planned business expansions, new product launches and new capital investments in production capacity for the increased optimism.”

“Coupled with greater pressure for production capacity, Philippine manufacturing firms took in more workers again,” the report noted further, adding that “[h]igher employment has now been reported in each month since the survey started in January 2016.”

Still, February also saw Vietnam, with 54.2, outperforming the Philippines’ 53.6 in the Nikkei ASEAN Manufacturing PMI.

“Vietnam overtook the Philippines to record the strongest growth in February and registered the best improvement in operating conditions for 21 months,” the separate regional report read.

“Manufacturers in the Philippines saw a robust pace of expansion, albeit one that was weaker than the average for 2016 as a whole.”

Only two other members of the Association of Southeast Asian Nations (ASEAN) showed improvements: Myanmar, whose 51.9 was a 13-month high, and Thailand, flat at 50.6. ASEAN as a whole registered 50.3 in February, edging up from January’s 50.0.

Finally, the report noted that “[w]hile the majority of good producers in the Philippines, Indonesia and Vietnam were optimistic about their 12-month outlook, the degree of optimism was considerably less in Thailand, Malaysia and Myanmar. Singaporean manufacturers were the only ones expressing pessimism about future output in the year ahead.” -- with Danica M. Uy