Factory output decline persists in Jan.

FACTORY OUTPUT deteriorated for a 14^th consecutive month in January though the rate of decline slowed, the Philippine Statistics Authority (PSA) said.

Preliminary results of the PSA’s latest Monthly Integrated Survey of Selected Industries (MISSI), indicate that factory output — as measured by the Volume of Production index (VoPI) — contracted by 1.6% year-on-year in January, following revised declines of 9.1% in December and 4.2% in January 2019.

Factory output has been declining since December 2018, extending the losing streak to 14 months.

The IHS Markit Philippine Manufacturing Purchasing Managers’ Index (PMI) — a measure of purchasing activity, which is a leading indicator of manufacturing activity — increased that month to 52.1 from December’s 51.7. A reading above 50 signals expected improvement in purchasing activity, while a score below 50 indicates deterioration.

The PSA reported year-on-year declines in 11 out of 20 major industry groups in January, of which eight were in the double digits. These were wood and wood products (-42.6%); petroleum products (-39.7%); basic metals (-23.8%); miscellaneous manufactures (-23.2%); tobacco products (-18.3%); paper and paper products (-14.3%); textiles (-11.5%); and furniture and fixtures (-11.3%).

Average capacity utilization was estimated at 84.4%, with 12 of the 20 sectors registering capacity utilization rates of at least 80%.

“Normally in January, factories are usually (building up) inventory to prepare for their projected output in the next few months,” Federation of Philippine Industries (FPI) Chairman Jesus L. Arranza said in a phone interview, noting that the decline was “expected.”

Mr. Arranza added that domestic demand for manufactured products does not seem to be affected by the coronavirus (Covid-19) outbreak.

“A lot of people are still in the supermarkets or in the malls. Similarly, we did not receive any report from our members who slowed their manufacturing activity. Despite the Covid-19 scare, their workers continue to go to work,” Mr. Arranza said.

Rizal Commercial Banking Corp. (RCBC) Chief Economist Michael L. Ricafort added that the decline in manufacturing production in January was expected, but noted that it “improved” from a year earlier.

“The VoPI in January may have continued to decline year-on-year by 1.6%, but it already eased/somewhat improved vs. the 4.2% decline (in January 2019),” Mr. Ricafort said in an e-mail.

“It is interesting to note that volume of net sales index as of January 2020 grew by 5.9% year-on-year versus the 0.6% decline a year earlier,” Mr. Ricafort said, referring to another measure in the MISSI report.

The economist added the negative sentiment in global manufacturing carrying over from the US-China trade war has “somewhat eased” following the signing of the so-called “phase one” deal in January that may indicate normalization in trade relations.

Nevertheless, concerns over the Covid-19 outbreak may have offset gains in factory output for the month.

“[Concerns that] Covid-19 could spread to other countries… could further slow global economic growth, global trade, and global manufacturing activities, on top of the global economic slowdown and manufacturing already brought about by the lingering US-China trade war,” he said.

In a statement, the National Economic and Development Authority (NEDA) said that lingering concerns over the outbreak are affecting tourism and travel in the Philippines, which could dampen production of consumer-related manufactures such as food and beverages.

“Intensifying government action to monitor and implement mitigating measures will temper the potential negative impact of the Covid-19 on the manufacturing industry,” Socioeconomic Planning Secretary Ernesto M. Pernia was quoted as saying in the statement.

NEDA expects that the production of intermediate goods to overseas market will also be affected.

“Government needs to work closely with the industry in crafting and implementing strategies to effectively mitigate the possible impacts of Covid-19 on production,” Mr. Pernia said.

“For the coming months, the biggest catalysts or factors for Philippine manufacturing are the increased government spending or catch-up spending especially on infrastructure that may have positive effects in terms of higher demand for suppliers and other related manufacturing industries,” RCBC’s Mr. Ricafort said.

However, these gains could be offset by “lingering coronavirus concerns” that may slow down growth in manufacturing, exports, and the global economic output in general.

“In terms of slower demand for Philippine exports… [this] would also reflect some slowdown in the affected local manufacturing industries in the supply or production chain,” Mr. Ricafort said.

Mr. Ricafort added the suspended operations in some of China’s factories could “potentially cause some disruptions” in the global supply chain, including those for Philippine manufacturers that rely on imported raw materials and other inputs from China.

FPI’s Mr. Arranza said factory output is expected to recover within the year on the back of increased consumer demand. — Carmina Angelica V. Olano