Philippines: Manufacturing conditions improve at a softer pace in December
January 2, 2019
The manufacturing Purchasing Managers’ Index (PMI), produced by Nikkei and IHS Markit, dipped to 53.2 points in December from 54.2 points in November. Despite the softer print in December, the average for the fourth quarter was the strongest of the year. Moreover, the index remained above the critical 50-point threshold that separates expansion from contraction in the manufacturing sector.
Output continued to rise at an above-average pace in December, albeit at a slower rate than in November. New business inflows were also solid despite softening from the surge seen in November. The fourth consecutive decline in export orders signaled weaker external demand and confirms the continued expansion has predominantly been driven by the domestic economy. Sustained demand led firms to marginally raise staff levels and also scale up purchasing activity, although at a notably softer rate than in recent months. Consequently, inventories also ticked up in December. Backlogs of work, on the other hand, fell again in December but to the smallest extent in over two-and-a-half years. Supply chain constraints persisted in the month as repeated anecdotes of port congestion caused supplier delivery times to lengthen for the fifth month running.
In terms of prices, inflationary pressures ebbed in December, with input-cost inflation easing notably to the lowest rate since July 2017, as effects from the TRAIN laws and the weaker peso ebb. As a result, manufacturers raised output prices at a more moderate rate in December.
On December’s result, David Owen, economist at IHS Markit, commented: “The final survey of 2018 confirmed a strong end to the year for Filipino manufacturers. […] Also encouraging was a notable waning in input cost inflation to the weakest seen in over two years. Likely helped by the fall in oil prices, firms also reported an easing of recent cost pressures such as the exchange rate and the TRAIN laws. This in turn saw firms raising factory gate prices modestly, offering a calmer and confident outlook for the sector in 2019.”
Philippines Manufacturing Output Forecast
FocusEconomics Consensus Forecast panelists see manufacturing output increasing 7.1% in 2019, which is unchanged from last month’s estimate, and growing 6.9% in 2020.
Author: Lindsey Ice, Economist