By Mark T. Amoguis
FACTORY output posted its second consecutive month of decline in January, the Philippine Statistics Authority (PSA) reported on Tuesday.
Preliminary results of the PSA’s latest Monthly Integrated Survey of Selected Industries showed its volume of production index contracting by 4.1% year on year in January versus the December’s revised 11.9% decline and the 10.8% growth logged in January 2018.
The PSA reported that production of 12 out of the 20 major industry groups fell, namely: furniture and fixtures (-31.1%), basic metals (-12%), machinery except electrical (-8.3%), food manufacturing (-4.3%), chemical products (-4.1%), non-metallic mineral products (-8.6%), fabricated metal products (-9.3%), footwear and wearing apparel (-3.3%), printing (-8.3%), miscellaneous manufactures (-3.6%), tobacco products (-1%), as well as wood and wood products (-3%).
In comparison, the Nikkei Philippines Manufacturing Purchasing Managers’ Index (PMI) was 52.3 that month, slightly lower than December 2018’s 53.2, but higher than January 2018’s 51.7. A PMI reading above 50 signals improvement in business conditions from the preceding month, while a score below that point indicates deterioration.
Average capacity utilization — the extent by which industry resources are used in the production of goods — was estimated at 84.3%. Eleven of the 20 sectors registered capacity utilization rates of at least 80%.
“Manufacturing growth outturn in January 2019 showed a moderate improvement coming from December 2018. Nevertheless, with our recent progress in agricultural policy, we can expect manufacturing to recover further,” a press statement of the National Economic and Development Authority quoted its director-general, Socioeconomic Planning Secretary Ernesto M. Pernia, as saying.
Mr. Pernia noted the recent enactment of Republic Act No. 11203 — which is expected to cut retail prices of rice as it replaced quantitative restrictions with a tariff scheme when it took effect yesterday — may provide opportunities for factory expansion.
Meanwhile, Rizal Commercial Banking Corp. (RCBC) economist Michael L. Ricafort attributed manufacturing’s continued decline to higher base effects, spillover effects of higher inflation last year, as well as external factors such as the slower economic growth in developed economies and the ongoing US-China trade war that contributed to the decline in the country’s manufactured goods exports.
“With the easing trend of both inflation and interest rates, some manufacturers may find it more prudent to wait for borrowing costs to go down further… before borrowing more aggressively to fund new manufacturing facilities… Thus, this may have also led to the latest contraction in manufacturing,” Mr. Ricafort said.
For Federation of Philippine Industries (FPI) Chairman Jesus L. Arranza, the decline can be attributed to workforce shortage that led to a decline in the factory’s production output.
“There is a slowdown in production because it is so hard to get people…” Mr. Arranza said.
“This will be remedied, I’m sure. It cannot be a prolonged agony… This is just temporary,” he added.
“I’m confident that manufacturing will be more aggressive in the next few months. I don’t think it will have some problems.”
RCBC’s Mr. Ricafort shared this view, saying that the sector could pick up in the coming months on the back of easing inflation, lower interest rates, improving economic conditions abroad and “greater clarity” on the proposed rationalization of fiscal incentives that may have caused some foreign firms to put their expansion plans in the country on hold.
“Any further increase in the government’s spending — especially on major infrastructure projects — will lead to greater demand for allied/related manufacturing industries, especially those related to construction and construction-related inputs,” he added.
For NEDA’s Mr. Pernia, the government will have to pursue measures in order to attract investments and reduce the cost of expanding production capacity for existing firms. These include full implementation of the Ease of Doing Business-Efficient Government Service Delivery Act of 2018, the passage of the amendment to the Public Service Act that would foster competition in telecommunications, transportation and logistics, the proposed amendment to the Foreign Investments Act of 1991 that seeks to lower employment threshold to 15 direct employees from 50 for foreigners investing $100,000 in order to set up shop in the Philippines, and the amendments to the Retail Trade Liberalization Law that would ease equity and capitalization requirements.
“These measures are vital considering that manufacturing is expected to be dampened by less optimistic business and consumer outlook in the first quarter of the year. Higher domestic oil prices, rising adjustment in electricity rates and weather disturbances are expected to exert upward price pressures on the cost of inputs,” Mr. Pernia said.