Philippine factory output slows to 11-month low as inflation bites

MANILA, Philippines — Philippine factory output posted its weakest expansion in 11 months in July, indicating a loss in growth momentum as boiling inflation hit demand for locally-produced goods.

A survey of around 400 manufacturers in the country found that the Philippines’ Purchasing Managers’ Index (PMI), a gauge of manufacturing output, fell to 50.8 in July from 53.8 in June, S&P Global said in a report on Monday.

The latest reading settled slightly above the 50-benchmark separating growth from contraction. Explaining the survey results, S&P said the July PMI “signaled only a minor improvement in the health of the sector.”

And the culprit was rising inflation. In its report, S&P said demand from both local and international clients softened in July, as rising input costs prompt Filipino manufacturers to raise their selling prices. 

Survey data showed average production costs rose to their briskest pace in three months. As a result, stocks of manufactured items grew at a weaker pace last month.

"Overall, muted growth across the Filipino manufacturing sector adds caution to the air as inflationary pressures continue to heat up,” Maryam Baluch, economist at S&P GLobal Market Intelligence, said in a commentary.

At home, inflation sizzled to 6.1% in June, the hottest in nearly four years, as the country grapples with rallying global energy prices and a weak currency. The Bangko Sentral ng Pilipinas said last week that inflation likely further quickened in July.

READ: BSP: Inflation likely settled between 5.6-6.4% in July

S&P said companies were “unenthusiastic to make purchases”, adding that buying activity was “muted throughout July”.

At the same time, manufacturers said they continue to experience logistical challenges due to shipment delays and port congestion.

But on a brighter side, S&P said the slump in demand allowed factories to clear their backlogs while raising their workforce numbers. This, in turn, expanded their capacity.

“Despite the downside risks to growth arising from greater inflationary pressure, the outlook for the coming 12 months strengthened in July, with firms upbeat and remaining hopeful of a better global economic climate,” Baluch said. — Ian Nicolas Cigaral