Local factories finish 2022 on high note despite headwinds
MANILA, Philippines — Philippine factories finished the year strong, hurdling through headwinds while resurgent domestic demand is expected to keep the sector afloat in 2023.
A survey of around 400 manufacturers in the country found that the Philippines’ Purchasing Managers’ Index (PMI), a gauge of manufacturing output, inched up to 53.1 in December from 52.7 in November, S&P Global said in a report on Tuesday.
The December outturn was a six-month high in 2022.
The latest reading settled above the 50-benchmark separating growth from contraction. S&P explained the leap in the December PMI “signaled sustained growth.”
“The release of pent-up demand because of the COVID pandemic continued to help the recovery of the manufacturing sector this year. Furthermore, the latest upturns in output and new orders were stronger than the survey averages,” Maryam Baluch, economist at S&P Global, said in a commentary.
Baluch noted that the sector still faces challenges. These hurdles come in the guise of supply-chain disruptions, such as material shortages and delays. At the same time, inflationary headwinds could unravel the sector’s prospects this year.
The latest PMI report showed factory orders rose for the fourth straight month, although foreign demand showed a persistent downtrend. Domestic demand remained to be king as it led growth for most of the new orders.
The Bangko Sentral ng Pilipinas said inflation is supposed to slow down in the coming months. The prices of key consumer goods and services rose to a 14-year high of 8% year-on-year in November amid expensive fuel prices, supply-chain disruptions and a weak peso.
Domini Velasquez, chief economist at China Banking Corp., was surprised since local factories kept its head above water in December.
“On a positive note, inflation momentum is likely already slowing which would be beneficial for the manufacturing sector, especially if input prices decelerate. A return to normal, in terms of economic activities and employment continue to provide the necessary boost to keep domestic demand high,” she said in a Viber message.
That said, the latest PMI survey showed that workforce numbers rebounded in December since improved demand left factories in a buzz. Employment figures slid down in November.
The improvement in employment remained wanting, since the rate of job creation was found to be fractional at best.
Firms also kept input purchases at arms’ length and pre-production inventories rose at a softer pace as inflationary pressures remained. Even then, Velasquez saw glimmers of hope after China, a major trading partner, abandoned its zero-Covid policy.
“Likely in 2023, we will continue to see and expansion (> 50), especially as China continues to open up. A faster and stronger recovery from China bodes well for manufactured export products,” she added.
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