Factory output continues slump, down for 13th straight month in Dec.

By Jobo E. Hernandez

INDUSTRIAL PRODUCTION extended its declining streak to the 13^th straight month in December, the Philippine Statistics Authority (PSA) reported on Wednesday, with economists attributing the continued slump to tepid global demand.

Preliminary results of the PSA’s latest Monthly Integrated Survey of Selected Industries showed factory output — as measured by the volume of production index (VoPI) — contracting by 10.1% in December versus the declines of 7.8% in November 2019 and 9.3% in December 2018.

For full-year 2019, the factory output slump averaged 8.6% compared to the 7.1% growth average in 2018.

Factory output has been on a decline since December 2018, with the January result extending this losing streak to 13 straight months. This streak also surpassed the 12-month slump recorded between November 2008 and October 2009.

The PSA noted production of eight out of 20 industry groups fell in December, namely: petroleum products (-47.9%); basic metals (-47.9%); furniture and fixtures (-30.4%); miscellaneous manufactures (-10.5%); textiles (-9.1%); transport equipment (-3.4%); rubber and plastic products (-1.2%); and paper and paper products (-1.1%).

Average capacity utilization — the extent by which industry resources are used in the production of goods — was estimated at 84.4% with 12 of the 20 sectors registering capacity utilization rates of at least 80%.

“Manufacturing production continued to drop because of global trade tensions that have constricted markets and constrained demand,” University of Asia and the Pacific (UA&P) economist Cid L. Terosa said in an e-mail.

In a separate e-mail, UnionBank of the Philippines, Inc. Chief Economist Ruben Carlo O. Asuncion noted the manufacturing indices of advanced economies began to fall around the last quarter of 2018 and the start of 2019, “indicating a global slowdown in manufacturing activities.”

“The slowdown is a result of a confluence of factors. One is the pervasive uncertainty brought about by the US-China trade war in its early stages. Another was the anticipation that the global growth trend is on its tail end at the usual cycle of real growth [since the global financial crisis in 2008-2009],” he said.

Mr. Asuncion cited slowing global demand as another factor in the sector’s sluggish performance last year. “In the case of the Philippines, its economy is now more than ever intertwined with the global economy and its tendencies. One can observe this in the behavior of trade and its subsequent growth,” he said.

Mr. Asuncion said factory output is seen to pick up in 2020, noting the country’s PMI (Purchasing Managers’ Index) figures in January “were higher than expected.”

The Nikkei Philippines PMI reading reached 52.1 in January, higher than 51.7 in December and 51.4 in November. The January PMI figure matched that of October and was the strongest improvement since January 2019’s 52.3 print.

A reading above 50 signals improvement in business conditions from the preceding month, while a score below that point indicates deterioration.

While the VoPI and the PMI both seek to measure performance of the manufacturing sector, they differ mostly in terms of methodology used. The VoPI looks at the percentage change in production volumes in a particular period relative to a base period. On the other hand, the PMI indicates whether the proportion of respondents that reported an increase outweighs those that reported a decrease as regards to indicators such as output, new orders, inventory, employment, input, selling prices and sentiment over the following 12 months.

“This pickup may be derailed momentarily by the outbreak of the 2019-nCoV (novel coronavirus). However, manufacturing production growth is still likely to recover and will potentially pick up this year,” he said, referring to the novel coronavirus outbreak that led to nearly 500 deaths and infected more than 20,000 mostly in China.

For UA&P’s Mr. Terosa, manufacturing production will likely be slow in the first quarter with the coronavirus outbreak having adversely affected activity in global markets.

“Growth may start to pick up during the second half of the year,” Mr. Terosa said.

In a statement issued by the National Economic and Development Authority (NEDA), Socioeconomic Planning Secretary Ernesto M. Pernia stressed the need to support initiatives towards digital solutions in the private sector to boost growth in the manufacturing sector, as well as build up the capacity of the country’s labor force in meeting emerging market demands and expand from the production of basic products to higher value products for local consumption and export.

“We encourage industries to capitalize on innovation to reach their growth potential in this era of the Fourth Industrial Revolution. To this end, the government needs to formulate and implement policies and programs to stimulate innovation in the country,” Mr. Pernia was quoted in the statement as saying.