Headwinds loom above Philippine factories despite November gains

MANILA, Philippines — Local factories saw production improve in November but external headwinds could spell trouble for the sector’s recovery from the pandemic.

Results of the Philippine Statistic Authority’s monthly survey of selected industries showed the volume of production index (VoPI), a measure of manufacturing output, grew 5.9% year-on-year in November. This was faster compared to the 5.3% expansion recorded in October. 

This was the 18th straight month of expansion. 

The manufacturing sector saw its fortunes rise as the Philippine economy reopened for business early in the second quarter. Its climb proved slow since external headwinds, such as supply chain disruptions, hampered its ascent. 

Economic managers use manufacturing output as a gauge of economic welfare. This indicator measures the demand of consumers and businesses in the country, where consumption is king. 

When demand proves firm, manufacturers tend to hire more workers to keep production churning. In November 2022, the economic subsector provided part-time employment for many Filipinos at the advent of the holiday season. 

Nicholas Antonio Mapa, senior economist at ING Bank in Manila, expects demand to slow down. 

“We could face some challenges given softer demand due to slowing global trade,” he said in a Viber message.

Analysts fear the global economy is headed to a recession in 2023, a projection that loomed over investors’ minds in past months. The interest rate hikes injected by central banks everywhere, to combat inflation in their countries, partly contributed to this slowdown. 

Miguel Chanco, chief Emerging Asia economist for UK-based Pantheon Macroeconomics, agreed with Mapa’s take. 

“The outlook for private consumption this year is challenging, even though the worst of the surge in inflation likely is over,” he said in an emailed commentary. 

Broken down, 15 industries expanded in November. The manufacture of machinery and equipment except electrical led the pack as it ballooned 68.5% year-on-year. 

Seven industries contracted in the same month, spearheaded by manufacture of electrical equipment. 

Almost one-fifth of factories were churning at full capacity, as average capacity utilization inched up 72.5% from 72.4% in October.

“The surface-level resilience in spending and sales in 2022 was no free lunch, as it came at the expense of the rebuilding in savings lost during the pandemic, and it was backed by an unsustainable surge in household debt,” Chanco added.