THE Philippine Manufacturing Purchasing Managers’ Index (PMI) slipped from January’s seven-month high of 53.5 to 52.7 in February, with port congestion, among others, weighing on vendor performance which is resulting in further deterioration, according to Standard & Poors (S&P) Global Market Intelligence.
While the S&P Global noted that “solid demand” continues to drive growth across the Philippine manufacturing sector, it said February data did reveal some “areas of concerns.”
“According to the latest PMI data, growth across the Filipino manufacturing sector remained solid midway through the first quarter of 2023, albeit easing slightly from January,” Maryam Baluch, Economist at S&P Global Market Intelligence said.
However, Baluch noted that ongoing supply chain concerns “continued to remain a drag on the sector,” adding that “supplier performance worsened further, and to a greater extent, as material scarcity, port congestion and difficult transportation conditions resulted in a further lengthening of average lead times.”
With this, Baluch noted that higher prices at suppliers directly “fed into cost burdens, causing input price inflation to rise at a rapid and accelerated pace.”
Moreover, with production requirements increasing at a “softer” pace in February, employment fell slightly for the first time in three months, Baluch said.
S&P Global said greater production requirements meant that firms also raised their purchasing activity, with input buying increasing for the sixth straight month.
“Although sharper than the series average, February data signaled a softer rise in acquisitions of raw materials and semi-finished goods,” S&P Global added.
RCBC economist: Optimistic
MEANWHILE, Rizal Commercial Banking Corp. (RCBC) Chief Economist Michael Ricafort said the country’s manufacturing performance may have slowed month-on-month after accelerating for 3 months, to 52.7, but he said the February PMI is still in expansion mode or above 50, for the 18th straight month and for most months since 2021.
The RCBC Chief Economist attributed his optimism to the reopening of the economy, particularly the resumption of nationwide face-to-face classes, among others.
“The latest local manufacturing PMI gauge generally improved in recent months amid measures to further reopen the economy towards greater normalcy, such as the further improvement of local and foreign tourism in recent months [group tours from China already resumed since the latter part of January 2023] and the resumption of the nationwide face-to-face/in person schooling since August 22, 2022, the first time since the pandemic started more than two years ago, with a target of 100 percent full resumption by November 2022 for government schools but blended learning still allowed for private schools; thereby supporting the recovery of many affected businesses/industries, including some manufacturers,” Ricafort said.
In contrast, offsetting risk factors that could be “drags” for manufacturing growth for the coming months are, Ricafort said, the “relatively higher prices/inflation, rising interest rates that increase borrowing/financing costs including for new investments/expansion for some manufacturers.”
More risk factors, he noted, are the risk of recession in the United States, which he said is the world’s biggest economy that could slow down global trade, exports, manufacturing, investments/foreign direct investments (FDIs).
Ricafort also cited other global economic factors that could weigh on the manufacturing growth of the Philippines such as the “complicated economic reopening narrative in China,” which Ricafort said is the second biggest economy.
He also pointed to the Russia-Ukraine conflict which persisted since February 24,2022, as he said this led to “relatively higher global commodity prices and some disruption in the global supply chains and sanctions on Russia by some countries and some global companies stopped doing business/investments with Russia.”