After June growth blip, manufacturing backslides in July

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THE performance of the Philippine manufacturing sector worsened anew in July after showing a blip of recovery in the previous month, latest data on the country’s Purchasing Managers’ Index (PMI) showed.

In a report on Monday, IHS Markit said the Philippines’s PMI decelerated back to 48.4 in July from being near the 50-point growth threshold at 49.7 in June.

The PMI is a composite index aimed to gauge the health of the country’s manufacturing sector. It is calculated as a weighted average of five individual sub-components. Readings below 50 show deterioration in the industry while readings above the 50 threshold signal a growth in the manufacturing sector.

“With parts of the country experiencing further lockdown restrictions, such as in Manila and Cebu, the recovery in output levels stalled in July. Production declined only modestly, but nonetheless erased the slight improvement seen in June which was supported by steps to reopen the economy,” the report said.

According to the think tank, local companies highlighted the “stretched” supply of raw materials in July, contributing to limited production and lower sales. They also said delivery times lengthened at a marked pace as suppliers continued to operate with smaller work forces. Road checkpoints and the lack of air freight services also made it difficult to acquire inputs, according to surveyed firms.

IHS Markit economist David Owen said the latest Philippines Manufacturing PMI data showed that conditions are yet to improve at the start of the third quarter.

“It was hoped that June PMI numbers would signal the start of a recovery for manufacturers, as output tentatively increased. However, production levels dropped back into contraction territory in July, while new orders decreased for the fifth month in a row. As parts of the country remained under lockdown, goods producers appeared to lose out in terms of foreign trade, as new export sales fell dramatically despite the relative easing of global restrictions,” Owen said.

“While domestic demand may stabilize, it will be important for businesses to re-strengthen foreign sales in order to recover from this period of [likely] deep recession. IHS Markit forecasts a -6 percent annual drop in GDP in the second quarter,” he added.

“Jobs are also a long way from returning to pre-Covid levels, with latest data signalling a steep fall in employment again in July. With unused capacity still apparent amid a fall in outstanding orders, it could be a while before firms bolster their payroll numbers,” he further said.

In a separate report, Oxford Economics also warned of the “dangers” in the country’s manufacturing sector as the virus remains uncontrolled in the country.

“Overall, July PMIs do not paint a particularly encouraging picture and add to concerns of an economic relapse, especially in India and the Asean. With India and the Philippines struggling to contain the virus and reports of renewed outbreaks elsewhere, the risks of severe restrictions being reimposed have clearly risen,” Oxford Economics said.

“Hence, despite the strong Chinese recovery, we caution against too much optimism. In our view, recovery prospects vary greatly across the region, with India and the Philippines trailing far behind in our forecasts,” it added.

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