Low lending rates, higher infrastructure spending to boost manufacturing

MANILA, Philippines — Local manufacturing activity is expected to pick up in the coming months on the back of record low interest rates, as well as higher infrastructure spending, according to Rizal Commercial Banking Corp. (RCBC).

Michael Ricafort, chief economist at RCBC, said the record low interest rates would support greater demand for loans and financing for new investments, creating more employment and business opportunities.

The Bangko Sentral ng Pilipinas has slashed interest rates by 175 basis points, bringing the overnight reverse repurchase rate to an all-time low of 2.25 percent. It also lowered the reserve requirement ratio to allow banks to lend more to sectors severely affected by the pandemic.

Ricafort said the proposed Bayanihan to Recover as One Act (Bayanihan 2) would also provide more loans and credit guarantees particularly for micro, small and medium enterprises (MSMEs).

He said the proposed Corporate Recovery and Tax Incentives for Enterprises (CREATE) bill, which is expected to reduce the corporate income tax to 25 percent from 30 percent as early as this year, would help attract more foreign direct investments (FDIs) into the country, especially in the manufacturing sector.

Ricafort said a higher infrastructure spending may boost the performance of allied industries in the manufacturing sector.

Latest data released by the Philippine Statistics Authority (PSA) showed the manufacturing volume and value of production indexes continued to improve in July from the worst levels posted in April.

Ricafort said the manufacturing volume and value of production indexes would continue to improve as economies re-open from lockdowns, leading to further pick up in economic activity and further normalization of supply chain and logistics.

Despite the improvement, data showed the country’s average capacity utilization slipped slightly to 75.4 percent in July from 75.8 percent in June.