30 C
Manila
Friday, March 29, 2024

Oil prices, slow global rally stall recovery

- Advertisement -

THE recent oil price rally could make the recovery of the manufacturing sector and consumption spending even more challenging this year, according to local economists.

This after the Philippine Statistics Authority (PSA) reported that the country’s manufacturing output continued to decline and posted a contraction of 16.7 percent in January 2021.

The sector’s average capacity utilization rate was at 46.1 percent. It is already the second consecutive month that the average capacity utilization rate was below 50 percent.

“Global oil prices have surged about 30 percent this year due to coordinated supply constraints by oil producers. This price level is the first time since January 2020,” UnionBank Chief Economist Ruben Carlo Asuncion told the BusinessMirror.

“As a net oil importer, the Philippines will definitely have to deal with higher prices (and Consumer Price Index) if this oil price rally will be sustained in the medium term. If prices of manufacturing inputs also rise, we will definitely see capacity utilization rate challenges,” he explained.

Foundation for Economic Freedom (FEF) President Calixto V. Chikiamco told this newspaper that, unfortunately, the government cannot do much to mitigate the impact of high oil prices.

Chikiamco said higher oil prices will affect commodity prices leading to more expensive food items. “The market can’t absorb price increases due to the increase in oil input prices.”

Ateneo Center for Economic Research and Development (Acerd) Director Alvin P. Ang told the BusinessMirror the manufacturing sector’s performance is also significantly affected by the slow recovery in the country’s trade partners.

“It is a function also of the improvement of our international value chains. It may imply that international orders are still not back at their pre-Covid levels,” Ang said.

“Our recovery is really slow because 40 percent of our economy is dependent on international trade, so our recovery is also dependent on our neighbors,” he added.

Hope in 2nd quarter

However, Ang said, the manufacturing sector may see some improvement particularly in the second quarter when the economies of the country’s trading partners are expected to do better.

For some economists such as former University of the Philippines School of Economics (UPSE) Dean Ramon L. Clarete, the increase in oil prices may not necessarily be bad for the global economy.

The increase in oil prices, Clarete said, could already be a sign that the global economy is recovering. This bodes well for countries like the Philippines that also depend on trade partners to boost growth.

Nonetheless, Clarete said the country’s average capacity utilization rate of 46.1 percent in January is already cause for concern.

“The increase brings both good and bad news. Economic activity is picking up in the world, so we could expand our manufactured exports. Bad because we may not be ready for that because of the continuing pandemic. Industrial policy [is needed] to stimulate faster manufacturing exports,” Clarete said.

University of Asia and the Pacific (UA&P) School of Economics Dean Cid Terosa told this newspaper that more expensive oil products would also lead to higher inflation and weaken Filipinos’ purchasing power.

Terosa said this could also lead to higher interest rates with lower real money supply due to inflationary pressures. It could also lead to a wider trade deficit and weaker peso, he added.

While a weaker peso could boost consumption spending, it may not bode well for the manufacturing sector. The industry largely depends on imports to produce goods.

In January, the PSA reported that the low average capacity utilization rate was due to seven of the 22 industry divisions having at least 50 percent average capacity utilization rate.

These included the manufacture of basic pharmaceutical products and pharmaceutical preparations (67.5 percent); manufacture of wood, bamboo, cane, rattan articles, and related products (56.6 percent); and printing and reproduction of recorded media (56.1 percent).

The PSA said the list included the manufacture of paper and paper products (55 percent); manufacture of computer, electronic and optical products (52 percent); manufacture of rubber and plastic products (51.6 percent); and manufacture of furniture (50 percent).

“The proportion of establishments that operated at full capacity (90 percent to 100 percent) was 20.9 percent of the total number of responding establishments. Meanwhile, 40.5 percent operated at 70 to 89 percent capacity, while more than one-third (38.6 percent) operated below 70 percent capacity,” PSA said.

The data also showed that the Volume of Production Index (VoPI) contracted 16.7 percent in January 2021. This decline was faster than the 12-percent decrease posted in December but lower than the 1.9-percent growth in January 2020.

“The faster downturn in VoPI was brought about by the annual decreases of 18 industry divisions led by manufacture of wood, bamboo, cane, rattan articles and related products (-53.4 percent), manufacture of machinery and equipment except electrical (-48.9 percent), and manufacture of tobacco (-42.6 percent),” the PSA said.

The PSA data also showed the Value of Production Index (VaPI) contracted 21.1 percent in January 2021. This was a deeper decline from the 15.4 percent contraction in December and decrease of 1.7 percent in January 2020.

The PSA said the faster decline of VaPI for the manufacturing sector in January 2021 were the reductions in the indices of 18 out of the 22 industry divisions.

The industry divisions that led the contraction of VaPI were manufacture of wood, bamboo, cane, rattan articles and related products (-53.5 percent), manufacture of coke and refined petroleum products (-53.1 percent), and manufacture of machinery and equipment except electrical (-51 percent).

Read full article on BusinessMirror

- Advertisement -
- Advertisement -

Related Articles

- Advertisement -
- Advertisement -

Latest Articles

- Advertisement -