FACTORY PERFORMANCE in the Philippines unexpectedly shrank for the initial time in 19 months during March, as producers reduced output amidst uncertainty regarding US tariff measures.
The S&P Global Philippine Manufacturing Purchasing Managers’ Index (PMI) registered at 49.4, down from the 51 reading recorded in February.
March represented the very first occasion that the PMI, a highly regarded indicator of economic sentiment, dropped beneath the neutral 50 threshold since August 2023. It also concluded 18 consecutive months of growth.
A PMI value lower than 50 indicates a slowdown in operating conditions compared to the previous month, while a figure exceeding 50 suggests enhancement.
“The Philippine manufacturing sector displayed a renewed downturn in operating conditions in March. Additionally, the sector’s health deteriorated at the fastest pace since August 2021,” remarked Maryam Baluch, economist at S&P Global Market Intelligence, in a report.
S&P Global’s data on the Association of Southeast Asian Nations (ASEAN) revealed that the Philippines, along with Thailand (49.9), Myanmar (49.8), and Malaysia (48.8), all experienced contractions in March.
Indonesia achieved the highest PMI score (52.4) in March, trailed by Vietnam (50.5).
The PMI for the Philippines also fell short of the ASEAN average of 50.8 in March.
In its analysis, S&P Global indicated that Philippine companies reduced output in March due to a new decrease in incoming orders.
“Producers of goods saw a slight decrease in manufacturing output during March, marking the conclusion of an 11-month growth streak,” it stated.
S&P Global highlighted that factory orders diminished in March following a stretch of 18 months of expansion.
“Panelists mentioned that increasing competition and fewer clients prompted a decline in new orders, consequently leading to cutbacks in output. The earlier rise in new export orders also diminished, with data from March indicating a slight decrease in new business from overseas,” Ms. Baluch noted.
As production waned, manufacturing companies halted hiring activities during March.
“Levels of unfinished work also declined, after accumulating at the fastest pace in nearly two years during the previous survey period. Panelists indicated they had enough manpower to fulfill order requirements and complete any outstanding tasks,” S&P Global commented.
Additionally, S&P Global reported a “modest” rise in price pressures in March. Skyrocketing material costs compelled businesses to increase their prices, it added.
“However, both cost burdens and output charges escalated at rates that were weaker than their respective historical averages,” it mentioned.
In spite of the difficulties faced in March, Philippine manufacturers maintained a positive outlook for production.
“Nevertheless, businesses remain hopeful about their production forecasts for the upcoming year, with confidence levels reaching a four-month high. This optimism was mirrored in companies’ choices to maintain their purchasing levels and build inventory,” Ms. Baluch remarked.
As firms anticipated an increase in output in the coming months, purchasing activity surged for a 16th consecutive month in March.
“Moreover, companies opted to enhance their inventories, with purchase stocks witnessing a new rise, and post-production inventories expanding at a modest yet historically robust pace,” it stated.
Jingyu Pan, Associate Director at S&P Global Marketing Intelligence Economics, remarked that the optimistic production outlook of Filipino manufacturers arises from expectations of election-related expenditures and lower interest rates.
“However, in the long run, I believe many of them are also quite concerned about the effects of tariffs and what that might actually entail for production in the forthcoming year,” she expressed on Money Talks with Cathy Yang on One News on Wednesday.
US President Donald J. Trump is planning to declare a new series of reciprocal tariffs on US trade partners on Wednesday at 2000 GMT (Thursday, 4 a.m. Philippine time). These tariffs are anticipated to be enforced immediately following Mr. Trump’s announcement. (Related story “Trump to escalate global trade tensions with new reciprocal tariffs on US trading partners”).
The Washington Post revealed on Tuesday that aides at the White House have prepared a proposal to impose tariffs of approximately 20% on most imports to the US.
Michael L. Ricafort, Chief Economist at Rizal Commercial Banking Corp., mentioned that the downturn in factory activity may signify manufacturers’ “cautious stance” leading up to Mr. Trump’s tariff announcement.
He pointed out that higher US tariffs and other protectionist strategies could hinder global trade, investments, employment, and other economic activities, potentially harming the worldwide economy. — Aubrey Rose A. Inosante
