Factories snap delicate ascent to recovery in January

MANILA, Philippines — Local factories stopped their climb to growth territory and succumb deeper in the red in January.

It was a bad start for manufacturing after the volume of production index (VoPI), a measure of factory output, shrank 16.7% year-on-year in January, worse than the 12% slump the previous month, latest government data showed on Tuesday.

That output snapped 4 straight months of easing contraction, showing the fragility of recovery in one of the economy’s critical sectors. Bad operating conditions were to blame, analysts said, as public transport remained highly limited nearly a year into the Philippines’ economic reopening.

The future looks brighter though if IHS Markit, a British information provider, is to be believed. At the start of March, the firm said factories should have gone back to expansion mode in February, although new localized lockdowns in select Metro Manila areas announced just on Friday threaten to block that path.

“Industries are still adopting a wait and see attitude even as they start stocking up their inventory of raw materials that they can immediately use as soon as the economy is opened up further,” Cid Terosa, senior economist at University of Asia and the Pacific, said in a text message when sought for comment.

In January, only four industries gained some steam led by paper and paper products, which grew 22.1% year-on-year. Electrical equipment (17.2%), transport equipment (7.1%) and recorded media (1.8%) also went back to black to open 2021 in a high note.

In contrast, wood, bamboo, cane and rattan articles coming out of plants contracted 53.4% annually in January, leading the pack of losers. 

Ruben Carlo Asuncion, chief economist at Union Bank of the Philippines, said there might still be some basis to believe IHS Markit’s assessment of a rebound in February due to a “lag” in data collection.

“But we have to see the February number to confirm the said lag. If VoPI continues to decline in February, then this will be really worrisome,” he explained in a separate text message.