Fresh lockdowns sink Philippine factory output to 15-month low

MANILA, Philippines — The re-imposition of hard lockdowns in the capital and nearby provinces in August sent local factory output crashing to its lowest level in 15 months, derailing an already fragile recovery of the beleaguered manufacturing sector.

A monthly survey of around 400 companies showed the Philippines’ purchasing managers’ index (PMI), a measure of factory output, fell to 46.4 in August from 50.4 in the preceding month, British information provider IHS Markit reported Wednesday.

It was a massive drop below the 50-mark separating growth from slump which, IHS Markit said, “came as no surprise” after Metro Manila and some provinces returned to enhanced community quarantine (ECQ) last month following a resurgence of infections fueled by the highly-contagious Delta variant.

“Factories and their clients in the metro Manilla area once again paused their production lines in a bid to curb the spread of the new delta variant,” Shreeya Patel, economist at IHS Markit, said in a commentary.

“Consequently, all five of the PMI components worsened, or fell deeper into contraction territory,” Patel added.

The renewed lockdowns were so disruptive that production volumes fell for the fifth month in a row at a rate that was the fourth quickest in the survey’s history.

According to companies polled, both domestic and foreign demand collapsed last month, with exports falling at the briskest pace since July 2020. Anemic orders from clients mean factories had to reduce their purchases of materials needed for pre-production in a bid to recover costs, resulting into lean inventories.

At the same time, tight mobility curbs and business closures prevented many factory employees from going to work, leading to resignations and layoffs.

Meanwhile, lingering port congestions continued to hamper movement of goods, with delivery times in August among the lengthiest in the five-year-old survey’s history. Delays in delivery, coupled with global raw material shortages, pushed up production costs for factories, prompting companies to pass on part of the burden to consumers by raising selling prices.

Moving forward, companies said they are banking on ramped-up vaccinations, which is key to further easing of lockdowns, to bolster demand in the next months.

“On a brighter note, firms’ expectations towards the outlook remained optimistic owing to hopes that the latest downturn is only temporary,” IHS Markit’s Patel said.

“Policymakers have once again re-iterated the importance of inoculating the population, which it endeavors to do by early next year. Firms will hope shocks to the supply of vaccines are brought under control to prevent this being pushed back again,” Patel added.