Factory closures begin to cripple manufacturing in March

MANILA, Philippines — Manufacturing slumped for the first time this year in March, a sign movement restrictions meant to contain the coronavirus has started grinding factories to a halt, beginning with smaller ones.

The volume of production index, which gauges the quantity of merchandise produced by factories, declined 6.3% year-on-year in March, while value of goods manufactured dropped a faster 11.3% annually, the Philippine Statistics Authority (PSA) reported on Tuesday.

Despite the production slump however, average capacity utilization was nearly steady at 84.5%, suggesting plants were running at normal levels for most of March before the Luzon lockdown started in March 17.

But Michael Ricafort, economist at Rizal Commercial Banking Corp., said the data also showed that lockdowns in Luzon and some key areas in the Visayas and Mindanao have started to cripple manufacturing activity in March, especially those considered “non-essential” such as electronics.

“The biggest manufacturers that continued operating and have the biggest weight on overall capacity utilization are considered essential,” Ricafort said in a text message. “This is especially (true) for those operated by the biggest conglomerates/companies in the country.”

Broken down by industry, only five major sectors produced more than they did from last year. Chemical products led the group with output growing 15.2% year-on-year, followed by printing and furniture and fixtures that expanded 14.1% and 12.1%, respectively.

Oil manufacturers, suffering from a global price slump and lackluster demand, led the losers, with output volume dropping 34.3% year-on-year. Fuel makers were followed by tobacco producers whose output contracted 33.9% annually in March.

Food production, although considered essential and exempted from quarantine rules, still dipped 2.3% year-on-year, an indication of how a skeleton workforce practiced by companies dented supplies.

May bounce-back still uncertain

Going forward, a recovery in April appeared farfetched. “We expect the full impact of the enhanced community quarantine in April,” said Nicholas Antonio Mapa, senior economist at ING Bank in Manila.

“We can expect worse numbers going forward,” he said in an online exchange. 

For May, Ricafort said any improvement is hinged on whether quarantine measures “would be eased or gradually lifted” after May 15, similar to some areas now under a more relaxed general community quarantine (GCQ). Under GCQ, some non-essential services such as clothing manufacturing have been allowed, provided companies follow a skeleton workforce.

“GDP (Gross domestic product) growth could slow down to single-digit levels partly due to the contraction in manufacturing, which accounts for about 20% of the local economy,” Ricafort said.