Philippine manufacturing further picks up steam in May

MANILA, Philippines — Growth in the Philippine manufacturing sector improved in May lifted by robust demand, according to monthly tracking done by IHS Markit for Nikkei, Inc., although cost pressures intensified during the month.

The seasonally adjusted Nikkei Philippines Manufacturing Purchasing Managers' Index rose to 53.7 in the middle of the second quarter from April’s 52.7, signaling a faster pace of growth for a third straight month.

The latest PMI figure was the highest so far this year, marking a solid improvement in the health of the sector.

A reading above 50 indicates economic expansion, while a reading below 50 points toward contraction, Nikkei explained.

“The upturn in the Filipino manufacturing sector gained further momentum in the middle of the second quarter, lifted by strengthening demand conditions,” said Bernard Aw, principal economist at IHS Markit.

Faster rises in output, new orders and inventories boosted the headline PMI, survey data showed.

Purchasing activity picked up at a stronger pace, but suppliers faced difficulties coping with higher demand.

Higher costs

However, input cost inflation surged in May driven by supply shortages, a weaker peso, higher global commodity prices and tax reforms, the report said.

As a result, firms passed on higher costs to their customers by raising selling prices. Meanwhile, there were some reports of layoffs due to cost-saving measures.

But the report said the adverse impact caused by the Duterte administration’s new tax reforms “has clearly subsided.”

Bullish demand conditions also gave companies enough room to share some of the higher costs with their customers.

“Survey data suggest that consumer inflation could remain above 4 percent in May, which will raise expectations for another rate hike in June, following one in May,” Aw said.

“Survey indicators point to increasing economic activity in the coming months,” he added.