Factory output growth decelerates

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By Christine J. S. Castañeda
Senior Researcher

FACTORY PRODUCTION continued growth in October, albeit at its slowest pace so far this year, the Philippine Statistics Authority (PSA) reported on Wednesday.

Preliminary results of the PSA’s Monthly Integrated Survey of Selected Industries (MISSI) showed that in October, factory output — as measured by the Volume of Production Index (VoPI) — grew 3.9% year-on-year.

This was slower than the revised 4.2% growth recorded in September and was the smallest increase so far in 2018. However, it was a turnaround from October 2017’s 6.6% decline.

Factory output volume averaged 11.1% in the 10 months to October, higher than the 1.9% in 2017’s comparable period.

A similar trend could be seen in factory output as measured by value of production index (VaPI), which registered a year-low 3.3%, even though it marked a turnaround from last year’s six percent decline.

Both VoPI and VaPI have gained since January.

In comparison, the Nikkei Philippines Manufacturing Purchasing Managers’ Index improved to 54 in October from 52 in September and 53.7 a year ago, reflecting “solid” improvement in business conditions from the preceding month that kept the Philippines in Southeast Asia’s lead in this regard.

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%.

“Increases in the production of petroleum, export-oriented products and non-metallic mineral products drove expansion of manufacturing output in October,” the National Economic and Development Authority (NEDA) said in a statement.

Nicholas Antonio T. Mapa, senior economist at ING Bank NV Manila, said: “Manufacturing sector appears to have recovered from contraction in 2017.”

“On VaPI, [it] may have been due to dollar value of petroleum products that helped the sector post positive growth. On VoPI, petroleum products also saw hefty gains, up 30.8% given the demand for fuel both locally and abroad,” he added.

Mitzie Irene P. Conchada, associate dean at the De La Salle University School of Economics, said: “With the depreciation of the peso against the dollar, imported inputs and raw materials have been more expensive, hence, a lower VoPI growth…”

Looking forward, NEDA expects the government’s spending on infrastructure and other capital outlays and expansion of private sector construction activities to drive growth in the manufacturing of construction-related products.

“Over the near-to medium-term, we see that the Build, Build, Build program and the recently signed Regular Foreign Investment Negative List will help in raising the productivity of the manufacturing sector,” NEDA’s statement quoted its director-general, Socioeconomic Planning Secretary Ernesto M. Pernia, as saying.

Meanwhile, Mr. Mapa noted that the reduction in food manufacturing might drag economic growth this quarter.

“One development I note as a concern is the contraction in food manufacturing, both in terms of VoPI and VaPI. In GDP (gross domestic product), food manufacturing accounts for the lion’s share of the total sector, which could mean fourth quarter GDP manufacturing may be hampered, unless we see a turnaround in November and December.”

The VaPI and VoPI of the food manufacturing segment posted 13.2% and 14.9% contractions in October, worsening from their respective declines of 8.2% and 8.3% in September.