Factory output declines to record low in March
Czeriza Valencia (The Philippine Star) - April 2, 2020 - 12:00am

MANILA, Philippines — Philippine manufacturing conditions declined sharply to a record low in March as the enforcement of the enhanced community quarantine (ECQ) in Luzon caused several factory shutdowns, according to the latest Manufacturing Purchasing Managers’ Index (PMI) of IHS Markit.

The headline Philippine manufacturing PMI declined to 39.7 in March, down from 52.3 in February. This is well-below expansionary territory – and the lowest in series history – as a reading of below 50 indicates deteriorating business conditions in the sector.

The headline PMI provides a quick overview of the health of the manufacturing sector based on the weighted average of five indicators: new orders (30 percent weight), output (25 percent weight), job creation (20 percent), supplier delivery times (15 percent), and inventories (10 percent).

Declines across all indicators were seen in March as manufacturers struggle to cope with movement restrictions during the lockdown implemented to curb the spread of COVID-19.

Production and customer demand were the key factors leading to weaker business conditions in March as several firms stopped operations while some decreased output at a record pace.

Customer demand also fell sharply because of restrictions on travel and weaker consumption activity. Firms likewise suffered a large drop in overseas sales.

Purchasing activity also fell as firms attempted to recover costs and restructure stocks in line with lower demand. Inventories of pre-production goods thus dropped.

Delivery times also suffered because of border controls and travel restrictions, preventing firms from operating at full capacity.

Factory shutdowns also led firms to lay off employees while those unable to report to work because of travel restrictions resigned.

“The COVID-19 pandemic took its toll on goods production in the Philippines in March as the enforced lockdown of Luzon island led many manufacturers to halt operations until restrictions are lifted. These shutdowns led to sharp declines across the sector, with output, new orders, employment and stocks of purchases all falling at record paces,” said David Owen, economist at IHS Markit.

“In addition, manufacturing sales were stymied in March, with clients having to massively reduce order books amid much weaker consumer demand. Exports were similarly down as surrounding countries enforced their own lockdowns while curtailing foreign orders.”

Outlook among manufacturers in the country fell to its least optimistic in survey history as concerns on the long-term impact of the pandemic weighed on business forecast.

“Unsurprisingly, businesses were much less positive regarding the 12-month future period. With no one knowing the full timeline of the pandemic, the extent of the economic impact remains largely unknown,” said Owen.

Hopes of a swift return to normal operations and rebound in new contracts partly offset downbeat predictions

“Unsurprisingly, businesses were much less positive regarding the 12-month future period. With no one knowing the full timeline of the pandemic, the extent of the economic impact remains largely unknown,” said Owen.

Manufacturing conditions in the ASEAN region also suffered a sharp deterioration in March.

The headline ASEAN Manufacturing PMI fell to 43.4 in March from 50.2 in February, the lowest reading since July 2012. All seven countries covered by the PMI survey registered contractions but the downturn was most severe in Singapore.

All indicators for the region’s manufacturing sector hit record lows, with substantial declines for output and new orders.

“ASEAN manufacturers felt the full force of the coronavirus pandemic in March. The headline PMI dropped to the lowest in the survey’s near eight-year history, amid record contractions of output, new orders, inventories and employment. Notably, March was the first time on record that all of the seven constituent countries posted a deterioration in the health of their respective manufacturing sectors simultaneously,” said Lewis Cooper, IHS Markit economist.

“Restrictive measures stemming from efforts to contain the COVID-19 outbreak and substantial uncertainty surrounding the outlook also eroded firms output expectations during March. Sentiment was the lowest since the series began in mid-2012, although firms still remain, on average, optimistic output will increase over the next 12 months.”

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