Tighter quarantine worsens PH manufacturing in Aug

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Image by 加藤 俊 from Pixabay
Image by 加藤 俊 from Pixabay

The Philippine manufacturing sector headed into a steeper downturn in August 2020 as quarantine measures in a number of areas were tightened.

The Purchasing Managers’ Index fell for the second month running to 47.3 in August from 48.4 in July to signal a stronger deterioration in operating conditions, according to the latest survey of IHS Markit.

The August index, however, remained well above its record low of 31.6 in April, the London-based industry information and analytics service provider noted.

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 downturn was linked to a sharp drop in new orders and a subsequently steep reduction in output, as client demand fell notably due to the new restrictions,” IHS Markit economist David Owen said.

Output levels contracted for the second successive month, while manufacturing new orders have remained in negative territory since the coronavirus disease 2019 (COVID-19) pandemic escalated in the Philippines in March.

The imposition of stronger quarantine measures in Metro Manila and some of the surrounding provinces had an adverse impact on demand in August, IHS Markit noted.

New work inflows contracted sharply as movement was restricted, while some sectors were forced to operate at reduced capacity. Notably, the fall in new orders was the fastest seen in three months.

Export sales also declined, but only at a modest rate as global COVID-19 restrictions were generally relaxed.

The reduction in manufacturing production was markedly quicker than that seen in July, but the overall strength of the downturn was much softer than seen in the period between March and May when most of the country faced strict quarantine rules, IHS Markit said.

Moreover, job losses remained apparent as firms continued to trim capacity at a steep rate to adapt to the new economic environment.

“Stocks were also reduced, extending the run of depletion to six months. Businesses remain less confident than normal of an increase in output over the coming year, reflecting the uncertainty of the path of the pandemic and lockdown measures,” Owen said.

Delivery times at Filipino manufacturing firms lengthened again in the latest survey period, as has been the case in each month since August 2019.

Ongoing community quarantines, as well as fresh COVID-19 measures, led to further difficulties in acquiring inputs on time, IHS Markit noted.

Input prices, meanwhile, rose at the sharpest pace since February 2019, mainly driven by supplier shortages and increased import costs. Some manufacturers passed higher costs onto consumers through a rise in output charges.

However, the overall mark-up was modest, due to some firms continuing to offer discounts in order to stimulate sales.

IHS Markit said the outlook for the manufacturing sector remained subdued in August and was broadly in line with that seen in July.

More businesses predicted that output will improve in the year ahead than those expecting a decline, but confidence was much weaker than the series trend.