Projected factory output growth trimmed to 5%

MANILA, Philippines — Barcelona-based think tank FocusEconomics has cut the projected growth of the country’s manufacturing output to five percent instead of 5.6 percent this year.

Lindsey Ice, economist at FocusEconomics, said the manufacturing Purchasing Managers’ Index (PMI) of IHS Markit ticked down to 51.9 in August from July’s six-month high of 52.1.

“Consequently, the index edged closer to the critical 50-point threshold that separates expansion from contraction in the manufacturing sector,” Ice said.

She said the marginal downtick in August was largely due to weaker new order growth, which fell to an over one-year low, while businesses increased production at the slowest rate in four months.

The impact of the monsoons and weaker demand from abroad weighed on new sales during the month.

“Unfavorable weather conditions also put pressure on supply chains, causing delivery times to lengthen. Despite delays, companies increased purchasing activity and input stocks rose higher. Meanwhile, job creation rose at the quickest clip in nearly two years, which allowed firms to reduce backlogs of work, albeit only marginally,” Ice said.

In terms of prices, the economist said input cost inflation rose sharply due to higher raw material prices, prompting firms to pass on costs to consumers in the form of higher output charges.

Ice said manufacturers’ confidence in the outlook ebbed in August, but remained positive overall thanks to sustained sales growth and new product lines.

For 2020, the manufacturing output growth of the Philippines would recover to 5.3 percent, Ice said.

For the entire ASEAN (Association of Southeast Asian Nations), operating conditions in manufacturing firms deteriorated at the fastest pace since November 2015 in August at 48.9 percent from 49.5 percent in July as output, new orders and purchasing activity registered declines.

A reading above 50 indicates improving business conditions while that below 50 indicates contraction.

The headline PMI provides a quick overview of the health of the manufacturing sector based on the weighted average of five indicators: new orders (30 percent weight), output (25 percent weight), job creation (20 percent), supplier delivery times (15 percent), and inventories (10 percent).

Contributing to the decline were the moderate reduction in new orders and a second consecutive month of reduction in output.

August also marked the strongest fall in external demand since November 2015, weighing heavily on new orders.