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Philippine manufacturing

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Operating conditions in the Philippine manufacturing sector recorded a modest improvement in December 2019, with demand growing further and exports increasing from November, but production growth has been slight, reaching a 27-month low amid supply side issues, including traffic and port congestion issues.

The latest IHS Markit Purchasing Managers Index ticked up to 51.7 in December 2019 from 51.4 in November 2019, signaling another modest improvement in manufacturing conditions that was in line with the average seen for the year.

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.

“The Philippines manufacturing sector remained in a relatively solid position in December, with the headline PMI posting 51.7, in line with the average for 2019. The sector continued to post strong new order growth, albeit slower than that seen a year ago,” said David Owen, economist at London-based industry information and analytics service provider IHS Markit which compiles the PMI survey.

The improvement was partly driven by a solid rise in new orders received by Filipino manufacturers, with the rate of growth strengthening slightly from November. Alongside a broad-based increase in sales, firms noted a slight upturn in new work from foreign clients, marking only the second monthly expansion in seven months.

At the same time though, manufacturers increased production only marginally, with the pace of growth weakening to a 27-month low.

While stronger sales helped businesses to expand output overall, some firms mentioned that delays in input deliveries and difficulties in sourcing raw materials curtailed production.

Traffic issues were again a key factor influencing supplier delivery times, although panellists noted that typhoons and congestion at Manila port also contributed to the slowdown

“Most notably for manufacturers though are clear supply-side issues that are restricting output. Growing road and port congestion, particularly in Manila, remain a key feature of businesses’ concerns,” Owen said.

“The government has announced its ‘Build, Build, Build’ program to address the problem which some firms are hopeful will reduce supply chain blockages. Nevertheless, for the moment, production is being limited, and may remain so until these issues have been addressed,” he added.

IHS Markit said the weaker output growth meant that businesses were less optimistic toward the outlook for production over the coming year.

“The degree of positivity was one of the weakest in the series history,” IHS Markit said.

On the whole though, firms still expect output to expand over the coming 12 months, highlighting strong sales growth and government infrastructure projects as reasons to remain confident.

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