Factory output recovers from four-month slump, fastest in more than 4 years

By Jochebed B. Gonzales
Senior Researcher

FACTORY OUTPUT expanded by its fastest pace in more than four years in January, recovering from contraction in much of last year’s second half.

Preliminary data from the Monthly Integrated Survey of Selected Industries (MISSI) of the Philippine Statistics Authority (PSA) showed that manufacturing output — as measured by the Volume of Production Index (VoPI) — rose 21.9% year on year.

The January result was higher than the 14.9% growth recorded in the same month last year and a turnaround of the 9.2% decline seen in December 2017. January’s reading was also the fastest growth since December 2013’s 22.8% increase.

According to PSA data, January’s 2018 growth was “supported by two-digit annual expansions in 13 major sectors.” These sectors, ranked according to contribution to the overall growth rate, were: petroleum products (37%), machinery except electrical (36.8%), food manufacturing (15.2%), electrical machinery (13.9%), chemical products (32.3%), basic metals (35.5%), beverages (31.8%), printing (114.5%), non-metallic mineral products (17.5%), fabricated metal products (32.2%), paper and paper products (14.7%), miscellaneous manufactures (12.3%) and leather products (39.2%).

Capacity utilization, which is the extent by which industry resources are used to produce goods, averaged 84.1% for January, with 11 of the 20 major industries (55%) operating at capacity utilization rates of at least 80%.

For Michael L. Ricafort, economist at the Rizal Commercial Banking Corp. (RCBC): “[t]he strong, back-to-back growth in manufacturing may reflect the record high foreign direct investments in recent months… especially the new and expansion of manufacturing facilities that already became operational.”

“The recent improvements in manufacturing growth may also reflect the recent pick-up in the country’s exports growth, amid expansion of the country’s export markets with more free trade agreements,” Mr. Ricafort added.

Angelo B. Taningco, Security Bank Corp. economist, attributed the increase in production activity to higher wholesale prices of select manufactured products. “Moreover, buoyant global demand for manufactured items may have likewise encouraged bigger production,” he said.

Looking forward, manufacturing output is expected to sustain growth this year on account of higher government and household consumptions as well as the “continued gains” in investments, according to Socioeconomic Planning Secretary Ernesto M. Pernia in a statement released by the National Economic and Development Authority (NEDA).

“The sustained momentum in global trade growth will also provide additional boost to manufacturing growth, particularly export-oriented sectors,” added Mr. Pernia, who heads NEDA as director-general.

The NEDA chief also cited results of the central bank’s latest business expectation survey showing industry firms recording a higher confidence index score of 39% in the first quarter, better than the 33.2% in the fourth quarter of 2017.

RCBC’s Mr. Ricafort was likewise optimistic, citing favorable demographics, improving economic and credit fundamentals, better ties with the United States, as well as increasing investment pledges and official development assistance from China and Japan that would lead to more infrastructure projects.

“Manufacturing is still expected to sustain its double-digit growth in the coming months,” he said.

“[The] increased deployment of infrastructure projects… would be a source of growth for the local manufacturing to keep up with the greater requirements of the fast-growing economy for construction-related/-allied industries.”

For Security Bank’s Mr. Taningco, the entry of more foreign investments in manufacturing and a vibrant global economy “would spur external demand for domestic manufactured goods.”

“I expect food manufactures, machinery, petroleum, iron and steel, basic metals, non-metallic minerals and cement to spearhead manufacturing production throughout the year,” Mr. Taningco said.

Sought for comment, Philippine Exporters Confederation, Inc. President Sergio R. Ortiz-Luis, Jr. noted that market conditions domestically and in the US are “erratic” but should “even out” in the middle of the year.

“There are swings and corrections in the market, but I think the manufacturing sector is catching up with the orders,” Mr. Ortiz-Luis said.