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The Philippines’ manufacturing sector grew marginally in June 2020 following the relaxation of some community quarantine measures.

The Purchasing Managers’ Index (PMI) rose from 40.1 in May to 49.7 in June, posting just below the neutral 50.0 mark that separates expansion from contraction, according to the IHS Markit. 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.

IHS Markit said the latest reading was the highest since February, and signaled a further movement toward stabilization in the Filipino goods-producing sector.

“The change in government COVID-19 rules to the General Community Quarantine helped the manufacturing sector make large strides towards stability in June. Most importantly, production was raised for the first time since before the lockdown which, while marginal overall, marked a significant milestone in the reopening of the sector,” IHS Markit economist David Owen said in a statement.

Owen, noted, however, that many firms remained closed or operated at much lower capacity, suggesting that parts of the sector have some way to go to restore production to pre-pandemic levels. Demand also fell, although the rate of decline was far softer than in May.

Firms have noticeably held back from hiring as a result of weak demand, as employment numbers dropped at the steepest rate since March.

“The sharper decline in workforces suggests that manufacturers may need to see a strong rebound in goods demand before job levels can expand. Signs from new orders and export orders data are encouraging, but the recovery may still be gradual as the pandemic continues and even accelerates in some regions,” Owen said.

Purchasing activity, meanwhile, dropped for the fourth successive month, although the rate of reduction was by far the softest in this sequence and only fractional overall. Inventories of both pre- and post-production goods were again curbed, due to lower buying and efforts to produce only what firms needed to meet current order book volumes.

On the receipt of purchased items, manufacturers saw a further lengthening of lead times during June which signaled the eleventh monthly extension in a row. IHS Markit said firms mentioned that since many suppliers operated with minimal workforces due to COVID-19, delivery services were limited.

Input prices rose sharply, with the rate of inflation soaring to a 16-month high as firms saw a quicker increase in supplier prices amid transport difficulties and higher freight charges. Businesses partly passed higher costs onto consumers through a slight increase in selling prices. That said, IHS Markit said some firms reportedly offered discounts in an effort to improve sales.

The year-ahead outlook for manufacturing output rose to its highest since February, with companies seeing greater reason for optimism as the government relaxed COVID-19 quarantine measures. Many firms cited hopes this would help them regain customers and resume plans to develop new products.

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