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PH manufacturing in May improves but still in contraction mode

  • The Philippine manufacturing sector recorded a softer downturn in May 2021 as operating conditions inched towards stabilization
  • The Philippine Purchasing Managers’ Index rose from 49.0 in April to 49.9 in May, posting just below the 50.0 neutral value that separates expansion from contraction
  • Supply chain pressures evident with delivery times lengthening markedly
  • Softer declines in output and new orders signaled a step in the right direction, while a renewed increase in overseas demand also supported the sector
  • Firms remain optimistic about their output over the next 12 months

The Philippine manufacturing sector recorded a softer downturn in May 2021 as operating conditions inched towards stabilization, but supply chain pressures remained evident with delivery times lengthening markedly.

The Philippine Purchasing Managers’ Index rose from 49.0 in April to 49.9 in May, posting just below the 50.0 neutral value that separates expansion from contraction, according to the latest survey of London-based IHS Markit.

“Softer declines in output and new orders signaled a step in the right direction, whilst a renewed increase in overseas demand also supported the sector,” IHS Markit economist Shreeya Patel said in a statement.

Production volumes fell solidly in May, with firms attributing the reduction to business closures and material shortages. The rate of decline still eased from that seen in April, as factories in some cities were able to restart operations.

Despite a further reduction in new orders, the overall demand picture showed improvement with the rate of decline easing to only a marginal rate. New orders from overseas markets rose sharply, helped by easing international restrictions.

During the period, supply chain pressures remained evident with delivery times lengthening markedly. IHS Markit said firms looked to mitigate the effects of longer lead times by building safety stocks, helping keep backlogs at bay for now.

While firms continue to reduce outstanding business, Patel noted, however, that they are facing strong inflationary pressures.

“Transportation bottlenecks and limited material availability weighed somewhat on profit margins. An increase in selling charges and cuts to workforces suggest firms are seeking to control soaring expenses,” Patel said.

Supply chains continued to be impacted by COVID-19 restrictions, IHS Markit said.

Lead times lengthened further in May and to one of the most marked extents in the nearly five-and-a-half-year series history. Material shortages and transportation bottlenecks were often cited by respondents as delaying input deliveries.

To mitigate delays and amid expectations of greater demand in the coming months, Filipino goods producers added to their input inventory holdings in May. The rate of growth was sharp and extended the sequence of expansion to five months. Postproduction stocks broadly stabilized, however.

Firms remain optimistic regarding their expectations for output over the next 12 months. The vaccination program underpinned hopes of a return to normality by next May. That said, the degree of confidence was below the long-run series average, with anecdotal evidence suggesting some firms remain wary of the longer term implications of the pandemic.

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