By Justine Irish D. Tabile, Senior Journalist
PHILIPPINE FACTORY activity rebounded in May as strong domestic demand boosted output and new orders, although supply chain disruptions and rising costs related to the Middle East conflict continued to weigh on manufacturers, S&P Global said on Monday.
The S&P Global Philippines Manufacturing Purchasing Managers’ Index (PMI) improved to 50.8 in May from 48.3 in April. However, S&P Global said the recent uptick was “modest and historically subdued.”
A PMI reading above 50 means better working conditions than in the previous month, while a reading below 50 indicates a deterioration.
“The latest PMI data for the Philippine manufacturing sector revealed a mixed picture,” said Maryam Baluch, economist at S&P Global Market Intelligence, in a report.
“While manufacturers registered renewed growth in output and new orders, supply disruptions and cost pressures worsened as the Middle East conflict entered its third month,” he added.
Among the Association of Southeast Asian Nations economies with May PMI data on Monday, the Philippines reading followed Vietnam (52.8) but ahead of Myanmar (49.3).
S&P Global reported that the overall increase in Philippine manufacturing activity was due to an increase in new orders in May, after a sharp decline in April.
“Improved customer demand and new customer wins are said to have fueled the growth,” he said. “Basic data showed that this growth is due to the development of domestic demand.”
However, S&P Global said exports remain subdued, after sales abroad fell at the fastest pace since July 2020.
“However, the increase in new business encouraged firms to increase their production levels at a strong pace in May, after growth had stagnated in the previous month,” it added.
However, supply chain disruptions worsened in May. S&P Global said lead times for supplies are too long at about a year and a half, as companies combine orders to limit costs.
It said the conflict in the Mideast has also increased the cost of fuel and raw materials, causing input inflation to increase at a faster pace from August 2022.
With the cost of fuel and raw materials rising, manufacturers raised retail prices at the second-fastest pace in more than three years, surpassed only by April’s increase.
Despite the increase in new orders, purchasing activity declined as firms rely on existing inventory to meet production needs.
S&P Global said firms were drawing down inventory rather than increasing purchases, as stocks of inputs fell at the fastest pace in six years.
It also noted that May saw the biggest drop in manufacturing jobs in two years, mainly due to resignations and layoffs.ffs.
S&P Global noted that the level of positive sentiment among manufacturers was the highest in 18 months.
“Firms remain optimistic about the future, hoping that improved demand will support product growth,” Ms Baluch said. “Of course, sustaining this growth will depend on how certain customers feel about the economy and the politics of the country.”
NO REST?
Leonardo A. Lanzona, Jr., an economics professor at Ateneo De Manila said the S&P Global data “makes it clear that supply chain pressures are still biting.”
“To call May a recovery, we’ll need to see new orders increase convincingly, not just an increase in output. We’ll need hiring to resume and input pressures to ease.fiwe are armed,” he said in an e-mail.
“What we have is a sector that has moved back above the neutral line while still navigating through one of the most disruptive areas for commodity prices since 2022. That’s a tightening at the edges – not a recovery.”
Meanwhile, Marco Antonio C. Agonia, an economist at the University of Asia and the Pacificfic.
“In the immediate future, the re-opening of the school calendar may provide the necessary support for the next few months, howeverfiThe cant upside may be limited by production costs,” said Mr. Agonia.
“The situation could be more painful in the medium term, as the government is expected to return the money in the second half of this year to stimulate the aggregated demand and the peace bet in the Middle East will be visible,” he added.
