On a roll, local factories sustain output growth in July

MANILA, Philippines — Local factories sustained their hot streak as they posted triple-digit output growth in July owing to a low base. However, the recovery is under threat by lockdowns triggered by the hyper-contagious Delta variant.

What’s new

The Philippine Statistic Authority’s monthly survey of selected industries revealed that the volume of production index (VoPI), a gauge of manufacturing output, soared 537.9% year-on-year in July, speeding past the 453.1% annual growth in June.

Data showed that VoPI grew for the fourth straight month. Prior to this, output contracted for 13 consecutive months, which started at the onset of pandemic curbs in March last year.

To compare, a separate monthly survey of 400 companies by IHS Markit, a British information provider, showed the Philippines' purchasing managers' index (PMI), another measure of factory output, fell to 50.4 in July from 50.8 in the previous month. Despite the “marginal” slide, Markit said manufacturing output stayed above the 50 threshold separating growth from contraction. 

Why this matters

Economic managers look into manufacturing output, among other indicators, to determine the economy’s health. Any indications of slowing economic activity could motivate factory owners to slash its workforce and limit productivity to save money, as seen when the pandemic halted demand.

What analysts say

For Nicholas Antonio Mapa, senior economist for ING Bank in Manila, it would take time for real “growth” figures, bereft of low-base effects, to show up.

“It will be a couple of months to truly gauge whether this is growth beyond the bounce. Meanwhile, as base effects wane, we could see the VoPI and value of production index number normalize and settle at more moderate expansion contingent on the world economy improving and the domestic economy recovering from the recession,” Mapa said in an e-mail exchange.

Separately, Jun Neri, lead economist at Bank of the Philippine Islands, said a “meaningful” manufacturing recovery is expected by October “at the latest” as number of Filipinos, especially in Metro Manila, will have been vaccinated by then. 

Despite fresh lockdowns in August amid the Delta variant onslaught, Neri said manufacturing “probably continued to expand but slowed down” last month.

“The print is consistent with the Markit results pointing to the sector’s resilience in the pandemic since manufacturing is a low-contact business where health protocols are easier to implement than services,” Neri said in a commentary.

Other figures

• Fourteen out of 22 industries were in the green in July, led by the manufacture of coke and refined petroleum products.
• Manufacturing of tobacco products, along with eight other industries, slid into negative territory.
• More than a quarter of industries were operating at full capacity in July. Average capacity utilization rate declined to 66.7% in July from 67.7% in June.