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Saturday, June 24, 2017 | MANILA, PHILIPPINES
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   economic indicators

Date posted: Friday, September 02, 2016 | Manila, Philippines

BY Arnold S. Tenorio Research Head

PHL factories outdo SE Asian peers

PHILIPPINE FACTORIES outshone their Southeast Asian peers in the just-ended ghost month, after they ramped up production in what promises to be a strong third quarter for the country’s manufacturing sector.

Marking a strong debut in the Nikkei ASEAN Manufacturing PMI, the Philippines last month registered a seasonally adjusted purchasing managers’ index (PMI) of 55.3, suggesting that the country’s manufacturing sector remains on growth mode through the third quarter.

The manufacturing PMI is a composite index of five sub-components, with new orders having the biggest weight at 30%, followed by output (25%), employment (20%), suppliers’ delivery times (15%) and stocks of purchases (10%).

A PMI reading above 50 points to an improvement in business conditions, whereas a score below that threshold suggests a deterioration.

IHS Markit has been compiling for Nikkei the PMI for the Philippines since January this year, but released the results only yesterday. The Philippines, along with Thailand and Myanmar, are new additions to the coverage of IHS Markit, which yesterday also launched the ASEAN-wide index.

While a five-month low, the Philippines’ PMI for August was above the regional average and the highest among the seven Southeast Asian countries covered by the survey. Besides the Philippines, only Vietnam (52.2) and Indonesia (50.4) saw an improvement in their PMI in August.



“The latest PMI paints a mixed picture of the health of the ASEAN manufacturing sector. Despite an improvement in three out of the past four months, the rate of growth remains precarious,” IHS Markit economist Alex Gill said in a report summarizing findings.

“Another cause for concern is the lopsided nature of the improvement. The month-on-month expansion in the Philippines far outweighs that evident in any other country monitored in this survey, thereby suggesting an overreliance on Filipino manufacturing companies,” he said.

“Nonetheless, an expansion in output was reported in five out of the seven countries, indicating that the sector remains well-positioned for future growth.”

In its inaugural coverage of the Philippines, IHS Markit noted that the health of the country’s PMI last month stemmed from the strong showing of new orders and output, coupled with the continued improvement in new hires, suppliers’ delivery times and inventories.

“Conditions in the Filipino manufacturing sector continued to improve in August, again driven by sharp expansions in both new orders and output,” Mr. Gill said.

“There was a slight cause for concern though as the rate of job creation slowed to its weakest in the short survey history so far. Nonetheless, with employment rising overall and buying activity increasing, it is likely that companies will remain in expansion mode in coming months.”

Mr. Gill said the panel respondents for the Philippine PMI could be split into three sub-sectors, namely: consumer, intermediate and investment goods.

“Looking at the employment index, all three sub-sectors registered increases in staff numbers during August, the strongest of which was recorded by investment goods companies,” he told BusinessWorld in an e-mail.

The August PMI, while above the threshold, was lower than the seasonally adjusted 56.3 recorded the previous month. Barring a deterioration this month, Philippine manufacturing is poised for another strong showing in the third quarter.

Last month, the government reported that manufacturing helped drive economic expansion in the first half of this year. The Philippines’ gross domestic product (GDP) grew by 6.9% year on year in the first six months, with manufacturing expanding by 7.2% and contributing the most at 19.3% of total economic output.

Nicholas Antonio T. Mapa, market research officer for Bank of the Philippine Islands, said the survey suggests that the country’s manufacturing sector “remains in expansion.”

“We would also like to note that the pace slowed somewhat, consistent with the BSP’s survey conducted in the previous week showing a slight slowdown in activity going into the second half of the year,” he said.

Mr. Mapa was referring to the Bangko Sentral ng Pilipinas’ (BSP) Business Expectations Survey, which showed that industry firms turned less optimistic in the third quarter on account of the seasonal slack in production brought about by the rainy season, tighter competition and a decline in energy sales.

“Despite the slowdown, expansionary trends should be sustained in the coming quarters as economic activity remains solid and exports are seen to eventually wake from their 15 month slumber,” he said. -- with a report from Christine Joyce S. Castañeda

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