THE country’s manufacturing activity deteriorated further in October, moving below the 50.0 threshold that separates expansion from contraction for the second time this year, as weak demand continued to weigh on production and new orders.
The S&P Global Philippines Manufacturing Purchasing Managers’ Index (PMI) fell further to 49.1 in October from 49.6 in September. This marked the second deterioration in manufacturing operating conditions since April 2026’s 48.3.
“Continued reduction in both output and new orders was recorded,” S&P said.
It said the contraction rates were generally modest; however, while output “fell at a softer pace, the downturn in new orders deepened.”
“Some firms cited that weak demand and the current hot weather, linked by some panelists to El Niño, weighed on the two main contributors to the headline PMI index,” S&P said.
S&P said the slowdown was not limited to the domestic market, as manufacturers also reported weaker demand from overseas customers.
“As a result, new export orders remained in contraction,” S&P said.
“Nonetheless, the drag on total new orders from foreign sales lessened during the latest survey period and was only modest,” it added.
With production requirements weakening, S&P said manufacturers became more cautious about their purchasing activity.
“The sharper fall in purchasing activity and further job losses suggest manufacturers remain cautious amid subdued demand,” S&P Global Market Intelligence principal economist Siân Jones said.
Factory employment fell for a second consecutive month in October, with the pace of job losses accelerating from September.
“While the rate of decrease was modest, it was stronger than in September, with anecdotal evidence attributing this to resignations,” S&P said.
“That said, firms managed to keep on top of workloads, with backlogs falling at a sustained and modest pace,” it added.
Despite the continued weakness in production and demand, manufacturers reported an improvement in their business outlook.
Business confidence rebounded in October to its highest level in nearly two years, more than recovering the ground lost in September.
Jones said manufacturers were increasingly optimistic that improved demand, new projects and additional customers would support production growth over the coming year.
“A rebound in business confidence to a near two-year high nevertheless offers some encouragement, with firms anticipating that new projects and customers will support production growth over the coming year,” Jones said.
However, he argued that stronger optimism has yet to translate into a recovery in orders or hiring.
Jones said that the latest 50 basis points rate hike by the Bangko Sentral ng Pilipinas could further “restrain demand and investment through higher borrowing costs.”
Rizal Commercial Banking Corp. chief economist Michael Ricafort said the expected super El Niño drought, particularly through early 2027, could weigh on local manufacturing by reducing agricultural production and pushing up food and farm prices.
He argued that higher agricultural costs could, in turn, increase manufacturers’ input expenses and add to overall inflation.
However, he said strong exports in recent months, driven by rising global demand for artificial intelligence (AI)-related electronics and products, would remain a bright spot for some local manufacturers and the Philippine economy.
