Factory output sustains growth in September, slowest in 9 months

By Janina C. Lim
Reporter
FACTORY OUTPUT continued to grow in September, though at its slowest clip in nine months, according to data the Philippine Statistics Authority (PSA) reported on Tuesday.
PSA said that its latest Monthly Integrated Survey of Selected Industries (MISSI) showed volume of production increasing by four percent in September, turning around from the year-ago 5.7% contraction though still the slowest rise in nine months. MISSI is a monthly report that tracks production, net sales, inventory and capacity utilization of key industries to give a picture of the performance of the manufacturing sector.
September’s growth in volume terms — fueled particularly by six industry groups, namely: textiles (44.7%), petroleum products (26.7%), machinery except electrical (20.1%), miscellaneous manufactures (16.5%), transport equipment (16.2%) and non-metallic mineral products (13.3%) — took the year-to-date average increase to 12.3% from 3.85% in 2017’s comparable nine months.
MISSI value of production growth was similarly sustained in September but was the slowest in nine months at 3.7%, even as it was still a turnaround from a 6.2% reduction a year ago.
In comparison, the Nikkei Philippines Manufacturing Purchasing Managers’ Index improved to 52 in September and further to 54 in October from August’s 51.9, enabling the Philippines to dislodge Vietnam from Southeast Asia’s helm in this regard in the last two months.
“The month-on-month decline illustrates the impact of rising inflation,” Union Bank of the Philippines, Inc. Chief Economist Ruben Carlo O. Asuncion said in an e-mail on Tuesday when sought for comment, while Michael L. Ricafort, economist at Rizal Commercial Banking Corp., cited higher rice and other food prices, especially after Typhoon Ompong hit Luzon’s rice- and vegetable-growing provinces on Sept. 15; higher prices of oil then and a depreciating peso that made imports more expensive.
“Some frontloading of manufacturing activities a few months earlier to preempt/avoid further rise in inflation/prices may have also partly caused the slower growth in manufacturing,” Mr. Ricafort explained further in an e-mail on Tuesday.
Mr. Asuncion added that simmering Sino-US trade tensions could have also played a part, saying: “Some Philippine exporters that supply to Chinese exporters to the US and US exporters to China (directly hit by the trade war) may have been adversely affected in terms of slower demand.
Still, manufacturing growth has been “respectable enough”, according to UnionBank’s Mr. Asuncion, saying this could help boost the third quarter’s gross domestic product (GDP) performance that will be reported on Thursday. “Well, industry has been a big driver of GDP growth last 2017 and this 2018. This year, much of investment is directed [to] manufacturing.”
Average capacity utilization rate roughly steadied at 84.2% in September from the preceding months this year, slightly more than the year-ago 83.8%. Petroleum products had the highest rate among 20 tracked industries with 89.7%, followed by basic metals (89.0%), non-metallic mineral products (86.4%), machinery except electrical (86.0%), chemical products (85.2%), electrical machinery (85.1%), food manufacturing (84.8%), paper and paper products (83.7%), rubber and plastic products (83.3%), wood and wood products (81.5%) and textiles (80.3%).
For the National Economic and Development Authority, the recently issued 11^th Regular Foreign Investment Negative List (RFINL) which last week opened up a few more sectors to foreign participation should “further grease manufacturing activity in the country over the medium term”.
“We hope to sustain this growth momentum through the effectivity of the 11^th RFINL, which allows increased foreign participation in certain areas and activities. This could help facilitate the expansion of production capacity in the manufacturing sector,” NEDA’s statement on Tuesday quoted its director-general, Socioeconomic Planning Secretary Ernesto M. Pernia, as saying.
He cited, for instance, the opening up to 100% foreign participation of training centers for short-term high-level skills development that can help provide skills needed by industries to boost competitiveness. “We hope that these specialized institutions can upgrade the industries’ knowledge in robotics, engineering design, and additive manufacturing, among others,” Mr. Pernia said.
Moreover, the increase to 40% from 25% of foreign ownership participation cap for contracts for construction and repair of locally funded public works should help to further enhance connectivity needed to support growth of economic activity.