Manufacturing growth loses steam

By Jenina P. Ibañez, Senior Reporter

PHILIPPINE MANUFACTURING GROWTH lost steam in January, as the impact of Typhoon Odette and the surge in coronavirus disease 2019 (COVID-19) infections hampered demand and production, IHS Markit said on Wednesday.

The IHS Markit Philippines Manufacturing Purchasing Managers’ Index (PMI) reading slipped to 50 in January, from 51.8 in December 2021, ending four straight months of growth.

A reading of 50 indicates no changes in manufacturing conditions, while a reading above signals improvement and anything below suggests the opposite.

“The latest PMI data revealed an unfortunate start to the year for the Philippine manufacturing sector, with the surge in case numbers and Typhoon Odette hitting large parts of the nation,” said Shreeya Patel, an economist at IHS Markit.

“Anecdotal evidence suggested both factors weighed heavily on both domestic and international demand as well as firms’ ability to produce goods. Material shortages and delivery delays were also prominent, continuing pressure on vendor performance.”

Typhoon Odette struck the central and southern parts of the Philippines in December, causing billions in damage to both agriculture and infrastructure.

Starting January, Metro Manila and nearby areas were placed under Alert Level 3, a stricter lockdown, to contain another surge in COVID-19 cases, this time driven by the more infectious Omicron variant.

PMI is the weighted average of five sub-indices — new orders (30%), output (25%), employment (20%), suppliers’ delivery times (15%) and stocks of purchases (10%).

IHS Markit said the Philippines’ moderate PMI reading was mostly caused by a decline in output, with production volumes falling at its quickest rate in five months due to both the lockdown restrictions and bad weather. The stricter mobility curbs also caused weak demand and slower delivery times.

“International demand declined at the fifth quickest rate in the series with the pandemic and the typhoon reportedly weighing on sales to foreign markets,” IHS Markit said.

“Delivery times were also affected by adverse weather conditions and the pandemic with lead times lengthening at the start of the year.”

Meanwhile, factories continued to reduce their workforce, although at a softer rate.

Despite the production and demand declines, companies raised their pre-production inventories to prepare for possible shortages in the future. In contrast, post-production stocks dropped.

“Whilst the full impact of the typhoon and the Omicron variant are unknown, it’s clear production will certainly be impacted in the coming months as companies adapt once again,” Ms. Patel said. “Firms will hope for a quick recovery and remain prepared through advance ordering strategies.”

Out of the Association of Southeast Asian Nations (ASEAN) PMI reports released so far, both Indonesia and Vietnam recorded the highest growth in the region at 53.7, followed by Thailand at 51.7. Myanmar is behind the Philippines at 48.5.

Demand conditions in Indonesia improved on the back of new orders from overseas, while both new orders and output in Vietnam increased due to the absence of widespread restrictions, IHS Markit said.

The full ASEAN report will be released on Thursday.

Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said storm damage from Typhoon Odette likely caused disruptions in some manufacturing activities, especially in the hardest-hit cities in Visayas and Mindanao.

Factory activity could pick up in the coming months after Metro Manila was again placed under a more relaxed Alert Level 2 this month, he said in a Viber message.

Nicholas Antonio T. Mapa, ING Bank N.V. Manila senior economist, said the surge in cases due to the Omicron variant weighed on business sentiment. The rapid spread of the Omicron variant showed how new variants could still impact the country’s growth outlook.

According to IHS Markit, both the pandemic and typhoon moderated business sentiment to its weakest since August 2021. However, the overall outlook was still positive as firms hope for a “return to normality” and “fruitful market conditions” this year.

“Future growth aspirations and outlook will need to always consider the possibility of a return to tighter mobility curbs during episodes of virus waves,” Mr. Mapa said in an e-mail.

“Despite this recent disruption, firms remain optimistic that the Omicron wave and the fallout from Odette will be short-lived, a speed bump that merely saps some momentum but is unable to change the overall growth narrative. We believe expansion in manufacturing may continue for as long as virus mitigation is effective.”

Trade Secretary Ramon M. Lopez in a Viber message to reporters said the typhoon had a huge impact on manufacturing capacity as many areas lost basic utilities like power and water.

“But these factors are now getting resolved and on Omicron, we are seeing a downward trend, so we can expect an improvement in the PMIs in the months to come.”