Philippine factories finish 2021 strong as demand recovers

MANILA, Philippines — Local factory output continued its nascent climb in December, finishing 2021 strong as manufacturers gear up for improved operations despite continued supply chain disruptions.

British information provider IHS Markit reported the Philippines' purchasing managers’ index (PMI), a measure of manufacturing output, stood at 51.8 in December, the strongest expansion in nine months. Last month’s PMI reading was higher than 51.7 growth in November.

The latest print — a result of a monthly survey of around 400 firms — landed above the 50 no-change thresholds separating expansion from contraction. "Supporting this was an improvement in domestic demand and a slight uptick in output, the first for nine months," said Shreeya Patel, economist at IHS Markit.

At the height of Christmas shopping season, Markit noted that new orders rose in December, encouraging firms to stockpile inventories for the fourth straight month. This led companies to raise output expectations for 2022, which improved to a two-year high, Markit said.

But demand for local products from international clients fell at their fastest pace in four months last month due to the threat of the Omicron variant, which triggered another round of lockdowns abroad.

Sought for comment, Nicholas Antonio Mapa, senior economist at ING Bank in Manila, said that while production improved last month, it did not result into firms hiring more workers. Indeed, Markit reported that job shedding persisted in December, albeit at a softer pace compared to the past 22 months.

"Firms were replenishing draw down inventory, buoyed by an improving outlook. The pickup in production however still did not translate to an increase in hiring however but this trend may reverse if the expansion can continue," Mapa said in a Viber exchange. 

At the same time, global supply chain disruptions remained a reality for the industry. Companies polled reported shortages of raw materials in December, which compelled factory managers to hold back on ordering ahead. The supply bottlenecks, in turn, pushed up input costs that were partly passed on to consumers through higher selling prices.

For Patel, the fast-spreading may hamper the manufacturing industry’s recovery as the government re-tighten restrictions. ING Bank’s Mapa agreed.

"Omicron fears however may dampen outlook, which may, in turn, soften the momentum in the coming months should a surge in infections weigh on consumer sentiment," Mapa said.