The Philippine manufacturing sector has less reason to be optimistic these days, as the weakening of the peso not only failed to boost the export sector, but also made imported inputs more expensive.
IHS Markit principal economist Bernard Aw said the weak peso, compounded by sluggish output growth, slowed the country’s manufacturing sector in September, with the Purchasing Managers’ Index (PMI) indicating a subdued growth during the month.
Despite the modest PMI number in September, however, confidence remains in the manufacturing sector, as the country still has the second-highest PMI in the region during the month, after Vietnam.
In a report released by Nikkei and IHS Markit on Monday, data showed that the country’s PMI stood at 50.8 in September, slightly up from the record-low 50.6 in August. The report said the improvement in the sector is “marginal” and the September result is the second-weakest PMI print of the country since the survey started in January 2016.
The PMI is a composite index, calculated as a weighted average of five individual sub-components. Readings above 50 signal an improvement in business conditions on the previous month, while readings below 50 show deterioration.
Vietnam’s manufacturing sector continues to lead the region’s industrial expansion during the month, registering a PMI of 53.3. The Philippines came in second with its 50.8, followed by Indonesia’s 50.4 and Thailand’s 50.3.
Meanwhile, the three countries in the region whose manufacturing sectors were in contraction mode were Malaysia, with its PMI at 49.9, Myanmar at 49.4 and Singapore at the bottom with 48.6.
The report said output volumes were partly to blame, as they rose with the weakest rate since the survey started last year amid modest sales.
Employment also shrank for the sector for the second straight month, and rising cost for raw materials was also said to have affected production plans during the period.
Aw also made mention of the peso’s weak performance during the month as one of the issues faced by local manufacturers.
“The weak peso continued to pose a problem for manufacturers. Not only did the cheaper currency fail to provide a boost to exports, it raised the costs of imports. Coupled with supply shortages due to bad weather, costs for manufacturing inputs, especially in industrial metal and paper, increased further. There were also reports of rising cost inflation affecting production levels,” Aw said.
The economist, however, pointed out that optimism regarding output remained high during the period, encouraging firms, in turn, to increase their purchases of inputs.
“Survey data indicated that a majority of surveyed companies still expect output to rise in the next 12 months on the back of new product launches, an improving economic climate, marketing activity and business expansions. That optimism, in turn, led
firms to step up input buying at the end of the third quarter,” the report read.
In a separate commentary, ING Bank Manila economist Joey Cuyegkeng said indicators are strong in recent months, reflecting strong economy and would likely support the third- quarter GDP.
Cuyegkeng added that the reversal of the country’s PMI downtrend in September could validate a strong GDP print for the country in the third quarter of the year.
The ING economist sees the country GDP growing by 6.5 percent to 6.6 percent in the July-to-September period.