By Christine J. S. Castañeda
Senior Researcher

FACTORY PRODUCTION grew by its fastest pace in almost eight years in February, the Philippine Statistics Authority (PSA) reported on Thursday.
Preliminary results of PSA’s Monthly Integrated Survey of Selected Industries showed that factory output — as measured by the volume of production index — grew 24.8% annually in February.
February’s pace was faster than the revised 18.5% in January and the 9.8% increase a year earlier, and was the fastest since August 2010’s 25.5%.
Factory output volume averaged 21.6% year-to-date, higher than 12.4% in 2017’s first two months.
Average capacity utilization, which is the extent by which industry resources are used in the production of goods, was estimated at 84.2%.
Eleven of the 20 sectors registered capacity utilization rates of 80% and above.
Selected Industries
The manufacturing sector’s strength was echoed in IHS Markit’s seasonally adjusted Nikkei Philippines Manufacturing Purchasing Managers’ Index (PMI), which stood at 50.8 in February albeit lower than January’s 51.7. A PMI reading above 50 suggests improvement in business conditions, while a score below that signals deterioration.
In a statement yesterday, the National Economic and Development Authority (NEDA) said the February result “signals a continued improvement from its slowdown since the second quarter of 2017.”
“The increasing working-age population, rising productivity, improvement in business environment and aggressive infrastructure development will also help spur growth in the sector,” NEDA Officer-in-Charge and Undersecretary for Policy and Planning Rosemarie G. Edillon was quoted in the statement as saying.
Sergio R. Ortiz-Luis, Jr., president of Philippine Exporters Confederation, Inc. (Philexport), attributed the increase in factory output to the government’s aggressive spending on infrastructure which, he said, has “improved” exports and domestic consumption. “I think all [of these developments] point to the fact that the economy really is improving,” Mr. Ortiz-Luis said. “I’m happily surprised that [the growth] is this big because I was thinking that it’d be gradual… I did not expect it will be that big and that fast.”
For Mitzie Irene P. Conchada, associate dean at the School of Economics in De La Salle University (DLSU): “The manufacturing sector has been performing well in the past months due to higher demand for our exports and local goods.”
Ruben Carlo O. Asuncion, chief economist at Union Bank of the Philippines (UnionBank) was of the same opinion, saying: “This very significant increase, on a first quarter, signifies that the economy is humming and is doing well.”
“Although it is still early in the year to conclude anything, this is a step in a great direction for the Philippine economy’s health and capacity,” Mr. Asuncion said.
“With 16 major sectors contributing large upticks, this spells a broad impact of the continuing push for more investments and spending particularly in infrastructure development that directly affects majority of the manufacturing industry.”
PSA data showed 16 major sectors contributed to the growth in the volume output led by huge pickups in printing (108.1%), food manufacturing (32.6%), electrical machinery (30.3%), beverages (24.1%), petroleum products (23.4%), miscellaneous manufactures (20.5%), leather products (14.4%), fabricated metal products (12.6%), chemical products (11.1%), basic metals (10.7%) and machinery except electrical (10.4%).
Economists remain optimistic on the manufacturing sector’s prospects.
“With the economy doing well fuelled by government spending projects, remittances and investments, I think that factory output will continue its upbeat performance,” DLSU’s Ms. Conchada said.
“The global market is also doing well and will continue to have a positive effect on our exports.”
UnionBank’s Mr. Asuncion shared this optimism, saying: “With this strong positive increase in factory output in the first quarter [so far], it is expected that factory output will continue to grow as investments and spending increases throughout the year.”
For Philexport’s Mr. Ortiz-Luis: “I think it’s reasonable to expect that manufacturing will continue to grow.”
NEDA’s Ms. Edillon said “industries’ outlook for both the current and succeeding quarters remains bullish with the expectation of sustained robust demand, improvement in production capacity, new product lines, and enhanced marketing strategies.”
“However, risks to growth remain: the government must remain cautious of increasing inflation which may lead to higher cost of production for manufacturing firms,” she added.
“Strategies are needed to be pursued to sustain the upward growth trajectory of the manufacturing sector.”