Philippine factories cap 2021 with sustained 9-month run of output growth

MANILA, Philippines — Local factory output continued to grow in the final month of 2021, albeit at a slower clip despite strong demand during the Holiday season, as the manufacturing sector still reels from pandemic-induced global supply chain problems.

What’s new

Results of the Philippine Statistics Authority’s monthly survey of selected industries showed the volume of production index (VoPI), a measure of manufacturing output, expanded 17.9% year-on-year in December, slower compared to 25.8% growth recorded in November. 

This was the ninth straight month that VoPI grew, as Metro Manila and other areas saw quarantine measures ease, which allowed businesses to ramp up operations.

For 2021, VoPI grew at an average of 50.3%, a turnaround from the 40.5% contraction in 2020, when global supply chains saw massive disruptions as a result of pandemic curbs. 

Why this matters

Economic managers turn to manufacture output as a barometer of economic welfare as it can be an indicator of the demand situation in the country, where consumer spending is a major growth driver. When factories churn more finished products, that could mean strong demand from consumers.

In the past months, VoPI had been posting triple-digit growth rates which economists attributed to "base effects". This means that because the pandemic sank the economy to historic lows last year and crippled factory production, small gains from easing lockdowns would translate to stronger readings this year. 

What analysts say

Jun Neri, lead economist at Bank of the Philippine Islands, said: “I still think the manufacturing sector is dragged  by the evolving arrangement in global supply chains.”

For Nicholas Antonio Mapa, senior economist at ING Bank in Manila, the case for base effects "distorting" data remains.

"Base effects appears to still play a part in the recent report with the recovery magnified from the sharp fall in the previous year.  In the coming months, we do expect these growth rates to moderate further but remain in expansion as the economy reopens gradually," he said in an email.

For 2022, Mapa expects local factory output to recover fast in February after the Omicron variant surge, which sent infections to historic highs in January, brought back mobility restrictions in some areas around the country.

"The Omicron surge in January may have only a modest impact on manufacturing activity, despite the reversal seen in January PMI and we expect a quick recovery by February as mobility restrictions have been relaxed with the shift to Alert Level 2," he added.

Other figures

• Eleven industries grew in December, led by the manufacture of wood, bamboo, cane, rattan articles and related products which surged to a pace of 122.6% year-on-year.
• The other eleven industries, led by the manufacture of basic pharmaceutical products, saw output sink on-year in the same month.
• Less than a quarter of factories were operating at full capacity as average capacity utilization inched down to 67.3% from 67.8% in November.