PHILIPPINE manufacturing activity rebounded in May amid stronger domestic demand that boosted both production and new orders.
S&P Global’s Philippines Manufacturing Purchasing Managers’ Index (PMI) rose to 50.8 in May from 48.3 in April, climbing past the 50-point threshold that separates expansion from contraction.
While the latest reading signaled an improvement in operating conditions, S&P noted that the pace of growth remained modest by historical standards.
“The latest PMI data for the Filipino manufacturing sector presented a mixed picture,” S&P Global Market Intelligence economist Maryam Baluch said.
“While manufacturers registered renewed growth in output and new orders, supply-chain disruption and cost pressures worsened as the Middle East conflict entered its third month,” she added.
S&P said the turnaround was largely driven by a fresh increase in new business after orders contracted sharply in April.
“Improved client demand and new customer wins were said to have driven growth,” it said.
The improvement appeared to be concentrated in the domestic market, however, as export demand remained weak.
S&P said that new export orders declined at the fastest pace since July 2020, highlighting continued challenges in overseas markets.
The uptick in new business prompted manufacturers to raise production levels following a stagnant performance in April. Output expanded at its fastest pace in three months and exceeded the long-run survey average.
Despite the rebound in output and orders, firms continued to face significant operational challenges, with supply-chain conditions deteriorating further during the month as delivery times lengthened due to shipping delays.
Some companies also consolidated orders in an effort to contain costs, contributing to one of the most pronounced supplier delays recorded in nearly 18 months.
“The war in the Middle East had driven up fuel and raw material prices further, resulting in manufacturers facing greater cost burdens,” S&P said.
Manufacturers responded by raising selling prices although the pace of price increases was slower than the rise in input costs. Output charges nevertheless increased at one of the fastest rates recorded in the past three-and-a-half years.
Rising costs also affected purchasing decisions, with the factory purchasing activity declining for a third consecutive month.
S&P said manufacturers relied on existing inventories to meet production requirements.
“Filipino goods producers rapidly reduced their stocks of purchases in May. In fact, the downturn was the steepest in six years,” S&P said.
“Stocks of finished goods were also down for a second month running, albeit to a lesser extent,” it added.
Moreover, firms reduced workforces in May, at the fastest pace in two years, via a combination of resignations and layoffs.
Despite the reduction in staffing, firms were able to continue working through outstanding business, resulting in a modest decline in backlogs.
Respondents, however, were said to remain “increasingly optimistic about the future, hoping improved demand will support output growth.”
Business optimism climbed to its highest level in 18 months as firms anticipated stronger demand and higher output over the coming year.
S&P Global said the sustainability of the sector’s recovery would depend largely on demand conditions and broader economic and geopolitical developments.
“Indeed, sustaining this growth will depend on how certain customers feel in the economic and geopolitical outlook,” Baluch said.
