Philippine factory activity fell to a 3-month low in March amid rising energy costs
By Justine Irish D. Tabile, Senior Reporter
PHILIPPINE FACTORY activity in March fell to a three-month low in March as output and new orders fell amid the Middle East war, S&P Global said on Wednesday.
The S&P Global Philippines Manufacturing Purchasing Managers’ Index (PMI) fell to 51.3 in March from 54.6 in February. This was the weakest PMI reading in three months or since the 50.2 recorded in December.
A PMI reading above 50 means better working conditions than in the previous month, while a reading below 50 indicates a deterioration.
Despite the sharp slowdown in growth, March marked the fourth consecutive monthly improvement in the Philippine manufacturing sector.
“The war in the Middle East weighed on the performance of the Philippines’ manufacturing sector, PMI data for March showed,” said Maryam Baluch, an economist at S&P Global Market Intelligence, in a report.
“As much of the country’s oil from the Gulf countries is now at risk, the President has declared a national electricity emergency. Philippine producers are facing the shock of rising oil and fuel prices in the world market, as marked by significant increases in costs and charges, as well as soft demand conditions,” he added.
The Philippines is under a one-year state of national emergency as it faces a high risk of fuel supply disruptions due to the US-Israel war against Iran that began in early March. As an oil producer throughout the country, the Philippines remains exposed to fluctuations in global prices.
Other countries in the Association of Southeast Asian Nations (ASEAN) also saw muted manufacturing activity in March, as the region’s PMI fell to 51.8 in March from 53.8 in February.
The Philippines lags behind Thailand (54.1) and Myanmar (51.5), but ahead of Vietnam (51.2), Indonesia (50.1) and Malaysia (50.7).
In the Philippines, S&P Global said slower growth in output and new orders was largely due to customer uncertainty amid the Middle East war, citing anecdotal evidence.
“Slowing the pace of increase in new orders overall was a new drop in new export sales. Although the latest decline was small, it marked the first month of reduction since last December. Firms noted that the war in the Middle East has led to weak demand from foreign customers,” it said.
Philippine firms adjusted their production levels, but the pace of growth was “much softer” than the increase in February. The effect became weaker in three months.
“Reports of higher gas and fuel prices and material shortages led to further deterioration in retailer performance and, more importantly, fueled increases in operating costs and factory gate costs,” S&P Global said.
Manufacturers also eased purchasing activity in March, just below the neutral 50.0 mark, which helped ease some pressure on supply chains.
“High energy costs (including fuel and gas) and material shortages, resulting from the war in the Middle East caused both costs and expenses to rise in March. This followed a small reduction in the previous month. In addition, inflation rates in both price gauges were historically sharp,” said S&P Global.
In March, job creation continued for the third month in a row, but the rate of growth was small and the weakest in three months.
However, Filipino manufacturers were confident that production will continue in the next 12 months, as they remain optimistic that demand conditions will improve and drive growth.
“The timing and intensity of the war will have a direct impact on the direction of the sector in the coming months, as inflationary pressures weigh on sales and pricing power,” Ms Baluch said.
Reyes Tacandong & Co. Senior Advisor Jonathan L. Ravelas said the PMI data for March shows a temporary soft clip rather than a decline.
“The decline is mainly due to sluggish domestic demand, cautious consumer spending, and high cost pressures, which have caused firms to reduce new orders and production,” he said in a Viber message.
“That said, business sentiment has not improved. If inflation moderates and demand normalizes, we could see the PMI stabilize or rebound next month. For now, the break is more than a drop – and companies remain vigilant,” he added.
