PH manufacturing contracts in Oct on weak demand, fall in new orders

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Image by Michael Schwarzenberger from Pixabay
  • The Philippines’ Purchasing Managers’ Index fell to 48.5 in October from 50.1 in September
  • Weak domestic demand, sharp contraction in employment and lower production weighed on the sector’s health
  • Supply chain issues remained as delivery times lengthened, extending current period of deterioration in vendor performance to 15 months
  • Firms remain optimistic production will improve over the coming year
Image by Michael Schwarzenberger from Pixabay

The Philippine manufacturing sector’s health worsened in October 2020 as the economic fallout from the coronavirus disease 2019 (COVID-19) pandemic persisted.

The Purchasing Managers’ Index (PMI) fell from 50.1 in September to 48.5 in October, posting below the 50 neutral mark that separates expansion from contraction, according to the latest survey of IHS Markit. The latest reading dropped marginally after indicating a broad stabilization across the sector during September, to signal a contraction in operating conditions.

A reading above 50 indicates an expansion of the manufacturing sector compared to the previous month; below 50 represents a contraction, while 50 indicates no change.

“Weak client demand in domestic markets, a sharp contraction in employment and lower production weighed on the health of the sector, causing the overall PMI figure to drop,” IHS Markit economist Shreeya Patel said in a statement.

Production volumes dropped again in October, with the rate of decline quickening. Firms reporting a downturn overwhelmingly attributed it to weaker demand conditions. That said, IHS Markit noted that the rate of contraction was only marginal and much slower than the substantial decline seen in April.

Furthermore, manufacturers saw a decline in new orders at the start of the final quarter of 2020 despite a brief uptick seen in September.

The downturn was driven by subdued domestic demand which firms linked to the pandemic, whilst new orders from abroad increased for a second month running.

A renewed fall in new order inflows led companies to reduce their stores of inputs in the latest survey period. Stocks of both raw materials and finished goods were depleted, which firms linked to supplier shortages and uncertainty in demand.

Supply chain issues also remained evident as delivery times lengthened during October, extending the current period of deterioration in vendor performance to 15 months. Longer delays were widely linked to transportation restrictions, IHS Markit noted.

“The reopening of businesses will support a pick-up in the economy, although infection rates in the Philippines remain high compared to regional peers. Until virus cases are tamed domestically and globally, we are likely to see a protracted recovery in manufacturing production,” Patel said.

She said that for now, firms remain optimistic that production will improve over the coming year, but noted “it remains to be seen whether the latest contraction was temporary.”