Bounce-back steadies for factories facing brittle rebound

MANILA, Philippines — Output in local factories grew for the second straight month, but the pace by which they do so was the same from previous 31 days, reflecting both optimism for recovery and its vulnerability to future shocks.

The purchasing managers’ index stayed at 52.5 in February from January, according to a survey of 400 local manufacturers by IHS Markit, a British information provider. The report was released on Monday, ahead of next week’s official government data for January.

Described as “solid rate of expansion,” IHS’s latest reading signaled sustained momentum from factories in churning out products for local consumers and exports. A reading above 50 reflects expansion, and a 2-month streak bolsters optimism the economy is finally seeing some activities resume on the ground after lockdowns.

A key good indicator in the report was the sharpest increase in pre-production inventories, suggesting that firms are anticipating greater demand going forward— a critical component of economic rebirth that the Philippines has been trying to earn back since deciding to slowly relax prohibitions in June last year.

Yet at the same time, Shreeya Patel, IHS economist, said the restart of some factory machines are getting hampered by insufficient public transport that prevents employees from going to work and back home.

Worse, companies are still shedding workers 9 months into reopening, albeit at the softest pace in a year. Still, this means a “modest” increase in new orders is not doing the trick to keep people employed and earning even as some of these job losses were “voluntary resignations.”

“New orders also rose… (but) the rate of growth softened from that seen at the start of the year, but remained broadly in line with the index’s historic trend,” the report said.

“At the same time, demand from overseas markets dwindled, with export orders falling solidly. According to panelists, the COVID-19 pandemic continued to hamper demand conditions in international markets,” it added.

Another risk ahead is inflation. With the central bank expecting prices to remain elevated throughout 2021, even breaching its 2-4% target in some months, inputs needed to produce some goods are getting more expensive. The lack of an efficient cargo transport system is not helping.

“Firms reportedly passed on part of the burden to clients by increasing selling charges,” the report said.

With coronavirus vaccines yet to be broadly rolled out, Patel said the pandemic remains a “large threat” to the fragile growth in factory output over the past 2 months. Over the weekend, President Rodrigo Duterte signaled preparedness to lift more restrictions after an initial batch of donated vaccines arrived from China on Sunday.

Factories remain optimistic for the rest of the year in “hopes of a return to normality.” “Policy-makers will however welcome the sustained improvement in manufacturing operating conditions during February,” Patel said.