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Factory output extends slump to 12th straight month in November

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Filipinos work at Kinpo Electronics factory in Malvar, Batangas. -- REUTERS

FACTORY output declined for the 12th straight month in November, the Philippine Statistics Authority (PSA) reported yesterday.

Preliminary results from the PSA’s Monthly Integrated Survey of Selected Industries (MISSI) showed that the November factory output — as measured by the volume of production index — contracted by 6.1%. The recent figure was wider than the revised four-percent decline in October and a reversal of the 1.9% growth in November 2018.

The November figure marked the steepest decline since the 10.1% drop in August 2019.

Year to date, the factory output decline averaged 7.6% compared to the 9.1% growth average in 2018’s comparable 11 months.

Factory output has been declining since December 2018. This losing streak also matched the 12-month slump between November 2008 and October 2009.

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In comparison, the Nikkei Philippines Manufacturing Purchasing Managers’ Index (PMI)dropped to 51.4 in November from 52.1 in October — its slowest in five months.

A PMI reading above 50 signals improvement in purchasing, which is a leading indicator for future manufacturing activity as factories order raw materials for processing. A score below 50 indicates deterioration.

The MISSI reported declines in eight out of 20 major industry groups in November. Of these, six were in double-digits: furniture and fixtures (-41.2%); basic metals (-29.5%); miscellaneous manufactures (-22.1%); petroleum products (-21.8%); transport equipment (-16.7%); and electrical machinery (-13%).

Average capacity utilization — the extent by which industry resources are used in the production of goods — was estimated at 84.5% with 12 of the 20 sectors registering capacity utilization rates of at least 80%.

In an e-mail, UnionBank of the Philippines Chief Economist Ruben Carlo O. Asuncion attributed the manufacturing decline to a “confluence” of the weakness in global manufacturing, the uncertainty in global trade brought by the US-China trade war, and the delayed national budget last year “that may have affected capital formation crucial to the expansion of domestic manufacturing and indirectly impacting export development.”

“These manufacturing indices have fallen to the lowest levels since September 2016, and the Philippines, as part of the global manufacturing and trading network… was not spared, together with Asia’s export-oriented economies such as China, Taiwan, Malaysia, and South Korea,” Mr. Asuncion said.

With last year’s disappointment, Mr. Asuncion said the country’s manufacturing growth may turn around this year.

“With the certainty that the ‘phase one’ trade deal between the US and China will be signed this January 15 and… eventually to a ‘phase two’ [deal that would] support trade certainty between the world’s two largest economies, manufacturing growth may recover,” Mr. Asuncion said.

The economist, however, noted the outlook is also hinged on the de-escalation of recent tensions between the US and Iran.

“If and when cooler heads prevail, this specific geopolitical heightened risk may well diminish and fast track a potential global manufacturing recovery, which incidentally has started in European economies and the US with their currencies strengthening as prospects toward the end of 2019 seemed to have largely improved,” said Mr. Asuncion.

In a statement by the National Economic and Development Authority, Socioeconomic Planning Secretary Ernesto M. Pernia stressed the need for an “innovation-driven industrial policy” in order to strengthen the country’s manufacturing sector.

“Industries need to be encouraged to innovate and adopt efficient technologies. This is a key strategy to entice more investments, similar to the experiences of the country’s ASEAN (Association of Southeast Asian Nations) peers such as Thailand, Malaysia and Vietnam,” Mr. Pernia was quoted in the statement as saying. — E. C. Aruta

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