The nation’s manufacturing production increase softened annually in 2024 due to geopolitical strains that hindered demand, the Philippine Statistics Authority (PSA) disclosed on Friday.
Initial data from the PSA’s recent Monthly Integrated Survey of Selected Industries indicated that factory output, gauged by the volume of production index (VoPI), edged up by 0.9% on average last year, a deceleration from the 4.9% increase recorded in 2023.
This marked the lowest year-on-year growth in four years, or since the significant 40.5% decline during the COVID-19 pandemic in 2020.
In December, VoPI rose by 0.2% year on year, concluding three consecutive months of decline.
This reversed the revised 3.9% drop in November, although it was slower than the 3% reported in December 2023.
On a seasonally adjusted month-on-month basis, industrial production increased by 4% in December, a rebound from the 1.9% decrease in November.
Meanwhile, the S&P Global’s Philippines Manufacturing Purchasing Managers’ Index (PMI) rose to 54.3 in December from 53.8 in November, marking the fastest pace since the 54.8 reading in November 2017.
A PMI value below 50 indicates a contraction in the manufacturing sector, whereas a figure above 50 signifies expansion.
Sergio R. Ortiz-Luis, Jr., honorary chairman of the Philippine Chamber of Commerce and Industry, mentioned in a phone discussion that geopolitical tensions may have led to a reduction in production requests.
“Many orders were lost [last] year, and I believe geopolitics played a role in this as we have lost substantial trade. We have seen a significant decline in visitors and investments from China,” Mr. Ortiz-Luis Jr., who also serves as the president of the Philippine Exporters Confederation, Inc., stated.
He further remarked that China has shifted towards engaging in business with other Southeast Asian countries.
“While we are gradually improving, we are being left behind by our neighbors who are securing the majority of the orders and investments from China,” he expressed.
“I hope geopolitical conditions can improve; I believe they must, and the tensions need to diminish. There has been a reduction in our electronics [exports], which should have been robust, but is now weakening,” he added.
John Paolo R. Rivera, senior research fellow at the Philippine Institute for Development Studies, noted in a Viber message that the decline in manufacturing output last year reflects a “softer” industrial and export activity.
This aligns with broader economic headwinds, encompassing stricter financial conditions and lower global demand. It may indicate a reluctance among companies to expand capacity due to demand uncertainties, elevated interest rates, or heightened operating costs, Mr. Rivera remarked.
He added that export manufacturing faced challenges, potentially reflecting “weak” global demand from China and the US.
In the meantime, Mr. Rivera explained that the slight rise in December was attributed to several factors, such as enhanced logistics and raw material availability, policy support for the manufacturing sector, a possible decline in global oil prices, and diminishing inflationary pressures.
Nonetheless, he associates the sluggish growth with weak external demand, higher borrowing expenses, and limited investments from the private sector.
The PSA credited the minor growth in factory output in December to the production of computer, electronic, and optical products, which experienced a 4.3% rise compared to a 5.8% decline in November, along with coke and refined petroleum products (up 4.4% from -11.6%), and transport equipment (6.1% from -0.2%).
The average capacity utilization rate in December reached 75.5%, slightly down from 75.7% in November.
Nineteen out of 22 industry divisions achieved average capacity utilization rates of at least 70%.
“The manufacturing sector’s outlook for 2025 will depend on a relaxation of monetary policy, recovery in global trade from major economies like the US, China, and ASEAN… as well as increased infrastructure spending, industry incentives, and investment-friendly regulations,” Mr. Rivera remarked.
“If inflation stabilizes and energy costs remain manageable, production expenses may decrease, fostering growth,” he added.
The Bangko Sentral ng Pilipinas (BSP) commenced its easing cycle in August last year, reducing key interest rates by a total of 75 basis points by the close of 2024.
The BSP anticipates inflation to stabilize at 3.3% this year, within the 2-4% target range. — Kenneth H. Hernandez