By Abigail Marie P. Yraola, Researcher
Factory production expanded to 8.5% in August, its fastest pace this year, logging higher growth compared to the previous year, the Philippine Statistics Authority (PSA) reported on Friday.
Manufacturing output, measured by the volume of production index (VoPI), climbed to a seven-month high in August compared to the 4.6% growth seen in the same month last year, according to the preliminary results of the Monthly Integrated Survey of Selected Industries (MISSI).
This reading indicated faster growth compared to the 4.9% growth in July. It was also the fastest growth in seven months or since the 8.6% growth posted in January.
Looking at the monthly figures, the manufacturing sector’s VoPI increased by 4% in August, inching up from the 3.8% growth the previous month. Adjusting for seasonality factors, VoPI grew at a slower pace by 2.7% compared to the 3% growth seen in July.
The August results brought average factory output growth to 5.8% for the year to date, much lower than the 21.1% average growth seen in the same period in 2022.
Robert Dan J. Roces, chief economist at Security Bank Corp., said in a Viber message that the uptick in August likely signifies a rebound in demand and possible operational efficiencies within the manufacturing sector.
He added that the average growth stands at 5.8%, which he explained is considerably lower than 2022’s 21.1%. This could be attributed to the base effects, slower trade, and inflation, he noted.
Consumer price growth in 2022 averaged 5.8%, exceeding Bangko Sentral ng Pilipinas’ (BSP) 2-4% target.
In response to this accelerating inflation, the central bank hiked interest rates by a cumulative of 425 basis points between May 2022 and March where the key rate now stands at a 16-year high of 6.25%.
Meanwhile, the trade balance in 2022 logged a $58.24 billion deficit, the largest recorded data since 1991, the earliest year for which the data is available.
In 2022, the value of merchandise exports logged $78.98 billion while imports recorded $137.22 billion.
Domini S. Velasquez, chief economist at China Banking Corp., said that this higher growth of VoPI bodes well for the economy.
“The manufacturing sector remained resilient despite minimum wage hikes implemented in NCR and Calabarzon,” she said in a separate Viber message.
She further explained that in Asia, a slight rebound is seen in the manufacturing sector, with China posting its first expansion since April this year.
“If this trend continues, we expect the domestic manufacturing sector to continue to expand modestly despite higher interest rates,” Ms. Velasquez said.
The NCR Tripartite Wages and Productivity Board approved a P40 increase in the daily minimum wage in Metro Manila, which took effect on July 16.
This brought the daily minimum wage to P610 for workers outside the agriculture sector and P573 for those in the agriculture sector, service retail establishments with 15 or fewer workers, and manufacturing companies with less than 10 workers.
In September, the Regional Tripartite Wages and Productivity Board of Cagayan Valley approved a P30 increase that would be given in two tranches, which brought the daily minimum wages in the region to P450 for nonagriculture workers and P430 for workers in agriculture establishments.
For Central Luzon, the wage board has approved a P40 increase for nonagriculture, agriculture and retail service establishments while for the SOCCSKSARGEN region, a P35 increase in daily wages has been approved and will also be given in two tranches.
Contrary to the VoPI growth, the manufacturing Purchasing Managers’ Index (PMI) in August stood at 49.7%, marking the first time in two years that the PMI reading was below the 50 mark.
The PMI is a leading indicator for future manufacturing activity, as it reflects forward demand expectations in the form of raw material orders for use by factories in a few months’ time.
A reading above 50 indicates an expansion in expected manufacturing activity while below 50 denotes a deterioration in operating conditions.
The statistics agency said that three industry divisions were responsible for the faster growth in August, led by coke and refined petroleum, rising to 48% from 35.6% in July.
Food products logged a 0.7% growth, a turnaround from the 3.4% contraction in July while the annual decline in the output of computer, electronic, and optical products slowly declined to 5.2% from 17% in July.
Additionally, the PSA said that while seven other industry divisions recorded annual increases during the period, 12 categories posted contractions which include manufacture of furniture, logging the largest annual drop with 31.9% from the 36.9% decline in July.
Annual declines in VoPI were Machinery and equipment except electrical which steepened to 29.3% in August from its 16.8% decline in July and wearing apparel with 16.7% from its 23.1% contraction in the prior month.
August capacity utilization averaged 73.9%, a tad higher than the revised 73.6% in July. The August reading was also higher than the 71.5% posted in August last year.
According to the statistics agency, all industry divisions exceeded 50% utilization during the period.
Mr. Roces said looking ahead, the strong August performance bodes well for short-term factory output, although factors like global supply chain issues and trade policies will be key determinants for the sector’s health for the remainder of the year.