PHL factory growth picks up pace in May — Nikkei

By Elijah Joseph C. Tubayan, Reporter
PHILIPPINE manufacturing activity saw a “solid improvement” last month to record its highest level so far this year, as demand grew despite upward prices pressures from global commodity prices, a weaker exchange rate, and the impact of the tax reform program.
According to an IHS Markit survey conducted for Nikkei, the Philippines’ Purchasing Managers’ Index (PMI), grew to 53.7 in May from 52.7 in April, marking the highest reading for the year over fast output and new order growth.
“Growth in the Philippines manufacturing economy gained pace in the middle of the second quarter as demand conditions improved further. New business expansion picked up noticeably, encouraging factories to scale up production. Increased demand lifted purchasing activity which, in turn, boosted inventories,” the report read.
“Survey data showed further signs of improvement in client demand in the wake of the tax reform measures, which were put into effect at the start of the year. New business inflows grew at the fastest rate since November last year, even as export sales growth cooled,” it added.
Due to heightened demand, firms ramped up production resulting in the fastest output growth in five months.
However the report noted that the rise in input costs “intensified” last month, due to “supply shortages, a weaker peso, higher global commodity prices, and tax reforms.”
“As a result, firms raised selling prices again, with the rate of increase remaining solid, reflecting efforts to pass on higher costs to their customers,” it said.
Bernard Aw, Principal Economist at IHS Markit, said however that improved demand conditions show that the “adverse impact caused by the new tax reforms has clearly subsided.”
However he added that inflation may still remain elevated, which will “raise expectations for another rate hike in June,” following the Bangko Sentral ng Pilipinas’ 25-basis point hike in May.
Mr. Aw added that rising inflation pressures may take a toll on firms’ profit margins.
“PMI data showed firms raising selling prices at a slower rate in May amid rising costs, suggesting that companies may have a threshold of the extent to which their customers can bear higher prices without affecting demand. The good news is that improving demand conditions permitted firms to share some of the higher costs with their customers,” he said.
Still, the report noted that business confidence remained elevated, as majority of firms surveyed said they are confident on faster output growth in the coming months over product launches, new outlets, higher sales forecasts, promotional activity and increased productivity.
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 weighing at 30%, followed by output (25%), employment (20%), suppliers’ delivery times (15%) and stocks of purchases (10%).