Advertisement

Factory activity growth continues to slow in January

Font Size

By Karl Angelo N. Vidal, Reporter

FACTORY activity in the Philippines moderately improved in January at the slowest pace in four months on softer output growth and decline in employment, although local manufacturers saw a rise in new orders, according to the latest survey IHS Markit conducted for Nikkei, Inc.

The Nikkei Philippines Manufacturing Purchasing Managers’ Index (PMI) stood at 52.3 in January, falling from 53.2 recorded in December.

This was the slowest domestic manufacturing growth in four months or since the 52 recorded in September, and “markedly weaker” than the survey average, Nikkei said.

Despite this, the country posted the highest PMI print compared with its Southeast Asian peers, with Vietnam and Myanmar trailing behind at 51.9 booked last month. The aforementioned countries also saw softer manufacturing growth from December’s 53.8 and 52.5, respectively.

A PMI reading above 50 indicates improvement in business conditions from the preceding month, while a score below that point signals deterioration. The manufacturing PMI consists of five sub-indices, with new orders having the heaviest weight at 30%, followed by output with 25%, employment with 20%, suppliers’ delivery times with 15% and stocks of purchases with 10%.




Nikkei said the latest reading indicated a “modest” advancement in business conditions.

Despite the rate of increase easing to a four-month low, the report noted manufacturing output growth remained “solid”, thanks to a sharp rise in orders from new clients.

“Around 16% of businesses reported increased production, mainly in order to fulfill new orders as well as the pending orders from December,” the report read.

While firms booked “another sharp rise” in new orders last month, this was still below the average rate of growth across the series.

The report also noted that employment at manufacturing firms fell for the first time in six months. “Nevertheless, firms reduced backlogs at a sharp rate, as the respective index lowered from December’s 33-month high,” it added.

At the same time, overseas demand continued to slip for the fifth month, as anecdotal evidence showed that foreign clients that used to place regular orders are now reducing frequency.

Purchasing activity also expanded modestly last month, signalling the weakest rise in input buying across the series that began three years ago.

Input price inflation, on the other hand, recovered slightly from the softening in December, on the back of the implementation of the Tax Reform on Acceleration and Inclusion Act last year, as well as higher raw material prices.

“Finally, confidence about output in 12 months’ time dipped fractionally in January to the second-lowest in the survey history,” the report read.

“That said, businesses retained a generally positive outlook, citing an expected increase in sales and expansion of products and premises during the year. Exactly 62% of firms expect output to rise.”

IHS Markit economist David Owen said the January data suggested a “slow start to the year” for local manufacturers.

“Purchasing activity grew at the weakest rate throughout the series history, while employment declined for the first time since July. Export orders fell for the fifth month in a row, as China, their top export destination, reported slower growth during 2018,” Mr. Owen was quoted as saying.

Chinese factory activity continued to shrink for the second straight month in January, which stood at 48.3 from 49.7 in December, as output and new orders dropped.

“This news may add to fears that exports could slow even further in the first quarter. Nevertheless, strength in the domestic market should carry the industry through a potentially turbulent period,” Mr. Owens added.

Sought for comment, Rizal Commercial Banking Corp. economist Michael L. Ricafort said the manufacturing growth slowed down to a four-month low as it reflected the slower growth in exports amid a global economic slowdown and lingering concerns on the US-China trade relations.

Apart from this, he said many manufacturing firms adopted a wait-and-see attitude amid the proposed rationalization of fiscal incentives.

“Another factor that slowed down manufacturing is the relatively higher borrowing costs, compared to the early part of 2018,” Mr. Ricafort said in a text message.

Last year, the Bangko Sentral ng Pilipinas raised its benchmark interest rates by 175 basis points by five times to rein in on inflation and price expectations.

“Borrowers in the manufacturing industries may be waiting for interest rates to ease some more from elevated levels before financing their requirements for operating expenses, new investments, and expansion plans, partly causing some slowdown in manufacturing activities while waiting for lower borrowing or financing costs to go down further,” Mr. Ricafort added.

Advertisement