Factory output rebounds to 25-month high in January —survey

Philippine factory activity rebounded to a 25-month high in January even as staffing cuts continued at the start of the year, results of the monthly survey conducted by IHS Markit released on Monday showed.

The country's Purchasing Managers' Index (PMI) rose to 52.5 in January from 49.2 in December, posting above the 50.0 threshold that separates expansion from contraction. This is the first time in four months that the sector signaled a turnaround.

"January data indicated a rebound in operating conditions across Filipino manufacturing sector after three successive months of decline," Shreeya Patel, economist at IHS Markit, said in an accompanying commentary.

"An increase in purchasing activity and stocked inventories was also a positive sign that manufacturing companies expect demand to grow over the coming months. Productions volumes rose solidly, while renewed growth in new orders indicated an overall improvement in demand conditions," she added.

Output volumes increased "modestly" in January while new orders rose at its fastest rate since July 2019, which respondents attributed to recovery in domestic demand even as overseas demand contracted given pandemic restrictions in key export destinations.

Local manufacturers also expanded their purchasing activity, as efforts to realign stocks with growing new orders led to an accumulation of both pre-production inventories and stocks of finished goods.

Raw material costs likewise rose in January, bringing the overall increase in cost burdens to its steepest since November 2018, due partly to adverse weather conditions during the period. This caused manufacturers to pass this on to clients through higher factory-gate prices.

"That said, signs of fragility remained evident with staffing cuts and sharp cost pressures mounting. At the same time, virus-related restrictions contributed to substantially longer delivery times and subdued foreign demand," said Patel.

Moving forward business sentiment remained positive as firms continue to see a rise in production over the coming year amid the easing of restrictions implemented to curb the spread of COVID-19.

The Philippines targets to vaccinate some 50 to 70 million Filipinos against COVID-19 this year, with the government allocating some P73.2 billion for the procurement. The amount includes P40 billion coming from multilateral agencies, P20 billion from domestic sources, and P13.2 billion from bilateral agreements.

"Business are hoping for a successful and swift vaccine roll-out plan, which is scheduled to begin during the first quarter. Until then, restrictions are likely to stay in place as policy makers seek to contain virus case numbers," said Patel.

The Philippine Statistics Authority (PSA) is scheduled to report results of the Monthly Integrated Survey of Selected Industries (MISSI) for January on March 9, 2021. —KBK, GMA News