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Return to ECQ cuts PHL manufacturing output

THE Philippine manufacturing sector’s output level shrank anew in April amid the resurgence of Covid-19 cases that forced the suspension of factory operations and dampened demand, IHS Markit reported.

The international think tank said on Monday the Philippines’s Purchasing Managers’ Index (PMI) declined to 49.0 in April from 52.2 the previous month, which indicates a “marginal contraction” in the local manufacturing industry’s operating conditions.

This is the first time the headline index dropped below the 50 neutral level after three consecutive months of growth, IHS Market noted.

A country’s PMI determines the health of its manufacturing sector and is calculated as a weighted average of five individual subcomponents. Readings below 50 show deterioration in the industry while readings above the 50 threshold signal growth in the manufacturing sector.

“April survey data revealed a setback for the Filipino economy, with operating conditions falling back into contraction territory after only one full quarter of growth,” IHS Market Economist Shreeya Patel said. “Tightening restrictions led to another round of factory and business closures, with output particularly hard-hit.”

The decline in employment figures also continued into the second quarter, she added.

The National Capital Region (NCR) and nearby provinces, including Cavite, Laguna, Bulacan and Rizal—or NCR plus—were placed under the most restrictive enhanced community quarantine (ECQ) on March 29 to April 11 amid the recent surge in Covid-19 cases. NCR Plus is put under modified ECQ (MECQ) beginning April 12 until May 14.

The Department of Trade and Industry estimated that some 1.5 million workers were displaced during the implementation of ECQ this year but around 500,000 workers are expected to have returned when the NCR plus transitioned to MECQ.

“Firms scaled back on their hiring efforts during the month with a weak demand environment and voluntary resignations often mentioned as driving the decline in employment,” the think tank noted.

IHS observed that there has been an increase in input prices as well, factoring in material shortages and higher freight charges.

The latest uptick in input price inflation is the “strongest” in over 2.5 years, it noted, explaining this also led to firms partially passing on the costs to clients.

“Supply-side pressures and rising costs were again evident throughout the latest survey period with material shortages and transportation bottlenecks widely reported,” Patel said. The lockdown measures amid pandemic have “increased lead times and limited raw material availability.”

On the matter concerning high freight costs, the Philippine Competition Commission (PCC) is already investigating if there is a potential price-fixing among industry players in the logistics sector that drove up prices.

The high freight charges were observed amid the shortage of container vessels due to imbalance.

The container shortage, the Philippine Exporters Confederation Inc. told the BusinessMirror earlier, has caused delays of two weeks to one month.

“On the brighter side, policy-makers have stressed the importance of the vaccination program in bringing a return to normality and while the initial progression was somewhat slow, the rollout seems to have gathered pace in recent weeks,” Patel concluded.

Image courtesy of AP/Kin Cheung

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