By Elijah Joseph C. Tubayan
Reporter

BUSINESS for factories in the country improved further in January, but such growth slowed “noticeably” as new orders and output increased at “the weakest pace in four months,” according to the latest monthly survey IHS Markit conducted for Nikkei, Inc.

The seasonally adjusted Nikkei Philippines Manufacturing Purchasing Managers’ Index (PMI) fell to 51.7 last month from 54.2 in December and 52.7 in January 2017, “signalling only a modest improvement in the health of the sector,” in contrast with “solid expansion in recent months.”

“The latest reading was the third-lowest in the survey history” that began in January 2016 for the Philippines and the lowest since September 2017’s 50.8, the report read.

A PMI reading above 50 suggests improvement in business conditions compared to the previous month, while a score below that signals deterioration.

The manufacturing PMI is composed of five sub-indices, with new orders having the biggest weight of 30%, followed by output (25%), employment (20%), suppliers’ delivery times (15%) and stocks of purchases (10%).

“January data suggested that demand was partially hit by higher excise taxes which were effective from January 2018,” the report read.

“Growth in new business intakes slowed to the weakest since September, prompting a marked deceleration in output growth,” the report said, while noting that production volumes grew “at one of the slowest rates since the survey started in January 2016.”

Republic Act No. 10963, or the Tax Reform for Acceleration and Inclusion Act (TRAIN) imposes higher excise tax rates on fuel, automobiles, tobacco, coal and minerals, as well as a new levy on sugar-sweetened beverages and cosmetic surgery, among others. At the same time the law strips out some value-added tax exemptions, while reducing personal income, estate and donors tax rates.

IHS Markit Principal Economist Bernard Aw added that the uptick in manufacturing input prices “could pose as a downside risk to future growth.”

January also saw buying levels increase “the slowest since August last year.”

“Survey data showed input costs increasing sharply and at one of the fastest rates in the survey history, pushing Filipino manufacturers to raise selling prices at a record pace,” he said in the report’s commentary.

Aside from the higher excise taxes, Mr. Aw noted that “a weak exchange rate and higher global commodity prices — especially in oil, metal and plastics — all pushed inflation higher.”

Still, elevated business confidence remain seemed to set the stage for the months ahead.

“But other survey indicators suggest that firms are likely to look past the near-term slowdown towards stronger growth in the year ahead. The Future Output Index remained elevated, with a majority of panel respondents anticipating higher production over the next 12 months,” said Mr. Aw, who linked the optimism to higher sales projections, greater operating capacity, new product models, planned business expansion and a robust economic outlook.

Sought for comment, Michael L. Ricafort, head of Rizal Commercial Banking Corp.’s Economics & Industry Research Division, said he expects manufacturing to pick up as reduced personal income tax rates under TRAIN should shore up consumption, while increased imports of capital goods in recent months signal a sustained increase in production.

“Lower individual tax rates will result in higher consumer incomes and higher consumer spending power that would benefit consumer-related industries in terms of higher sales/demand for consumer goods,” Mr. Ricafort said in an e-mail yesterday.

“The continued growth in both local and foreign investments, as well as some recovery in exports, would lead to some pick up in manufacturing activities, especially as additional manufacturing facilities are added, as manifested by increased importation activities in recent months (especially on capital goods, raw materials and other production inputs)…”

Ruben Carlo O. Asuncion, chief economist of the Union Bank of the Philippines, said that aside from the TRAIN, the second tax reform package — submitted by the Finance department to the House of Representatives last Jan. 16 — that will corporate income tax rates to 25% from 30% currently should also boost manufacturing.

“I say it is a foundation because a major pillar of manufacturing growth would be the planned tax rate cut on corporate income taxes expected from Package 2 of the Comprehensive Tax Reform Program of the government,” Mr. Asuncion said in an e-mail.

“Downside risks would be more from external sources. One is if the momentum in the global economy expected this 2018 will soften and demand for our exports decline. Another is connected to the first one: global growth can somehow impact remittances if its pace will not remain strong as market consensus expects. This indirectly impacts much of current domestic demand through growing cash remittances.”

By Melissa Luz T. Lopez
Senior Reporter

INFLATION likely accelerated in January to hit the high end of the government’s full-year 2018 target range, driven by rising food and crude prices as well as higher taxes on select goods under the tax reform law, the Bangko Sentral ng Pilipinas (BSP) said.

The central bank expects inflation to have clocked 3.5-4% last month, which would be the fastest rate seen in three months. The estimate also signaled that inflation will likely pick up from December’s actual 3.3% that compared to the BSP’s 2.9-3.6% range for that month.

“The increase in the prices of domestic petroleum products on account of higher global crude oil prices along with higher food prices due to weather-related disturbances could contribute to the rise in inflation for January 2018,” the BSP’s Department of Economic Research said in a statement sent late last Wednesday.

“In addition, higher excise taxes on fuel, sugar-sweetened beverages with the implementation of the TRAIN this month, would lead to additional upward price pressures,” it added, referring to Republic Act No. 10963 or the Tax Reform for Acceleration and Inclusion Act.

“The increase in prices could be partly offset by lower electricity rates in Meralco (Manila Electric Co.)-serviced areas for the month.”

The Department of Finance on Jan. 30 gave a 3.3% estimate that was steady from December.

The Philippine Statistics Authority is scheduled to report official inflation data on Tuesday.

The central bank expects full-year inflation to average 3.4% this year, faster than the 3.2% recorded in 2017 but still within the 2-4% target range.

Retail pump prices saw upward adjustments for four straight weeks last month as world crude prices soared to nearly three-year highs. As of Jan. 23, year-to-date fuel prices went up by P1.35 per liter for gasoline, P2.30 for diesel and P2.15 for kerosene, according to the oil monitor of the Department of Energy.

RA 10963, which took effect this month, imposed an additional P2.50 excise tax per liter of diesel at P3/liter for kerosene. The actual fuel price hike kicked in around mid-January as the new rates did not apply to old stocks, since duties are collected upon importation and not at the point of sale.

Food prices also inched higher year-on-year in the wake of tropical depression Agaton as the year opened. The storm damaged P527.245 million worth of agriculture — particularly rice and corn crops — in parts of southern Luzon and Western Visayas, according to the National Disaster Risk Reduction and Management Council.

Rice is the staple food among Filipinos, accounting for 8.92% of the theoretical basket of items consumed by a typical household that is used to compute the annual inflation rate each month.

The TRAIN law also introduced additional taxes on cars and sugar-sweetened drinks, which likely drove up prices of other widely used goods and services.

BSP Deputy Governor Diwa C. Guinigundo has said that the tax reform law will add less than one percentage point to inflation.

Meanwhile, lower electricity rates charged by Meralco could partially offset these price upticks. The country’s biggest distribution utility said it reduced the overall rate by P0.5260 per kilowatt-hour due to a lower generation charge.

BSP Governor Nestor A. Espenilla, Jr. said the upward inflation trend remains within expectation.

“The first-round price effects of TRAIN and other factors such as oil prices are evolving more or less as expected. We continue to continue to see the upward inflationary effects as transitory,” the central bank chief said in a text message to reporters.

“However, we are carefully assessing next-round effects and how inflation expectations could be affected. These considerations will be at the center of the coming policy discussions.”

Mr. Espenilla previously said that monetary authorities are monitoring requests for wage increases as well as higher costs of other products and services, even if these are not directly caused by the higher or additional taxes.

He pointed out that the central bank “may need to react” if price pressures intensify.

“The ability to meet the inflation target comfortably and mitigating the upside risks are very important to the BSP,” he added.

The central bank will update its inflation forecast for the year during its policy meeting next Thursday, its first of eight reviews planned for 2018.

By Krista Angela M. Montealegre
National Correspondent

COMPETITION authorities will have to strike a balance between allowing investments to flourish and protecting the welfare of consumers as the Philippine Competition Commission (PCC) ramps up enforcement this year.

In a panel discussion at the 2018 Manila Forum on Competition in Developing Countries in Makati City, Ayala Corp. Chairman Jaime Augusto Zobel de Ayala cited the experience of advanced Asian economies whose governments have created an environment for businesses to build strength before putting competition restrictions in place.

The Ayala chief executive noted that the Philippines has a development cycle and a new regulatory framework that, if not handled correctly, can become “burdensome” and limit the long-term success of industry.

“The Philippines is going through a cycle where promoting investments and encouraging investment-led growth should be balanced in some way with consumer welfare and the need to create a competition policy,” Mr. Zobel said.

In its first two years of operation, the PCC has collided with the country’s biggest conglomerates as it implemented the national competition policy.

The most notable case involves a court battle with Ayala-led Globe Telecom, Inc. and PLDT, Inc. after the duopoly acquired the telecommunication assets of potential third player San Miguel Corp. for P70 billion, widely seen as a litmus test for the young agency as it carries out its mandate of curbing anti-competitive practices.

Yesterday, the SM Group, owned by the country’s richest man Henry Sy, Sr., shelved a plan to purchase Goldilocks Bakeshop, Inc., citing changes in the business environment.

It was not clear if the decision — the first deal to be rescinded after being approved by the PCC — was a result of the voluntary commitments SM made to the antitrust body to resolve potential anti-competitive issues stemming from the transaction.

In a briefing on the sidelines of the forum, PCC Chairperson Arsenio M. Balisacan welcomed the comments of Mr. Zobel, noting that it is crucial “to learn from each other, hear their concerns and engage with them.”

PCC Commissioner Stella Luz A. Quimbo acknowledged that awareness of Republic Act No. 10667, or the Philippine Competition Act, which was signed into law in July 2015, remains “very low” in the country.

“Business is not a target. The way we perceive it is we want to work with business to ensure compliance with the law,” PCC Commissioner Johannes R. Bernabe said.

Moving forward, the PCC hopes to step up enforcement after the transitory period that allowed businesses to restructure their contracts to comply with the law ended last year.

“We expect to be very busy in the third year of the PCC and the years ahead with enforcement. Hopefully, we can finish this year some of the guidelines to tighten the enforcement mechanism of PCC,” Mr. Balisacan said.

There is no ideal model for a competition body that fits all situations, Frederic Jenny, chairman of the Organization for Economic Cooperation and Development’s Competition Committee, said, explaining that authorities have to consider issues relevant to domestic circumstances and trade-offs they have to make.

In Europe, competition authorities have enhanced effectiveness by reducing the scope of judicial review and focusing discussions more on remedies and less on the characteristics of the violation, Mr. Jenny said.

“At this stage, I would not waste resources on an active search for the optimal model; rather, for a provisional model shaped in time by a willingness to adapt,” said Raul V. Fabella, academician at the National Academy of Science and Technology.

Yasuyuki Sawada, Asian Development Bank’s chief economist, said rapid growth has elevated Asian economies from low- to middle-income status, and productivity-centered growth is needed for them to reach high-income level, hence, avoiding the middle-income trap.