THE Covid-19-induced trade bottleneck affecting the country’s major markets is a growing concern for the Philippine manufacturing sector, which continued to suffer a contraction in February, local economists said on Thursday.
The sobering outlook could impact efforts to help the jobs sector recover, they said.
Data from the Philippine Statistics Authority (PSA) showed that the Volume of Production Index fell by 43.6 percent and average capacity utilization was at 53.8 percent, the fifth consecutive month of decline.
The gradual reopening of top exporting countries like China and the United States have created a container crisis, which has hampered the movement of goods starting the fourth quarter of last year. Former Dean of University of the Philippines School of Economics Ramon L. Clarete said this development, coupled with a slowdown in demand for local goods and supply chain bottlenecks, are putting the brakes on factory output.
“Definitely. Plus Covid induced slowdown of demand for local food and beverages manufacturing and supply chain bottlenecks,” Clarete told the BusinessMirror when asked if the trade bottlenecks had an impact on the performance of the local manufacturing sector.
Ateneo Center for Economic Research and Development (Acerd) Senior Fellow and John Gokongwei School of Management Dean Luis F. Dumlao explained to BusinessMirror that these trade bottlenecks affect manufacturing performance on the supply and demand side.
“On the supply side, the supply chain gridlocks prevent intermediate goods from arriving at factories which limits manufacturing activities. On the demand side, lockdowns around the world have limited expenditures which have limited demand for manufactured goods,” Dumlao said.
Clarete also lamented that exporters are experiencing difficulties in overcoming these trade bottlenecks because of the “uncertainty in the direction of government policy on manufactured exports.”
Ofreneo, Clarete: jobs affected
To former dean of the UP School of Labor and Industrial Relations (Solair) Rene Ofreneo, the weakness of the manufacturing sector mainly owes to the weak demand due to the recession.
The pandemic, Ofreneo said, disrupted Global Value Chains (GVCs) and the operations of “Factory Asia.” He said China is experiencing problems due to protests in Myanmar, which disrupted the garments GVC.
This poor manufacturing performance, Clarete and Ofreneo agreed, will likely lead to a bleak jobs situation in the coming months.
Clarete said the government needs to be more proactive in its response to the ongoing crisis. “It will take some years before we go back to the surge in Aquino [era] to prepandemic Duterte government,” he stressed.
Former Tariff Commissioner George Manzano told the BusinessMirror that ultimately, logistical issues, supply chain disruptions and lockdowns will have implications on the flow of raw material as well as the distribution of goods.
“Of course, another source for the low utilization could be deflated demand for manufactured goods. The unemployment, uncertain export environment, investment uncertainties combine to soften demand for manufactured products,” he said in an e-mail.
Based on the results of PSA’s Monthly Integrated Survey of Selected Industries (MISSI), now termed the Production Index and Net Sales Index, VoPI declined to its lowest since the contraction of 56.7-percent recorded in September 2020.
PSA said in January, the VoPI declined 12 while it increased by 0.4 percent in February 2020. The downturn in VoPI was brought about by the contractions in the indices of 19 industry divisions.
In terms of Average Capacity Utilization, PSA said 15 of the 22 industry divisions had at least 50-percent average capacity utilization rate in February.
These were led by manufacture of furniture with a capacity utilization of 72.7 percent; other manufacturing and repair and installation of machinery and equipment, 65 percent; and manufacture of computer, electronic, and optical products, 63.8 percent.
PSA data showed the lowest recorded was in April when it averaged 46.1 percent. However, it was in October 2020, at the start of the trade bottlenecks in major markets, when the average capacity utilization rate declined to 59.1 percent.
The rate continued to decline to 58 percent in November 2020; 55.4 percent in December 2020; and 56.7 percent in January 2021.
MISSI is a report that monitors the production, net sales, inventories, and capacity utilization of selected manufacturing establishments to provide flash indicators on the performance of the manufacturing sector.
Image credits: Nonoy Lacza