Factory output growth slows in October as 'base effects' start to fade

Ramon Royandoyan - Philstar.com
The Philippine Statistics Authority’s monthly survey of industries reported that the volume of production index (VoPI), grew 24.7% year-on-year in October, markedly slowing from the 123.1% in September.

MANILA, Philippines — Local factory output grew at a slower pace in October, moderating to double-digit expansion as distortions from last year’s “low-base” begin to fade. 

What’s new

Results of the Philippine Statistics Authority’s monthly survey of selected industries showed the volume of production index (VoPI), a measure of manufacturing output, grew 24.7% year-on-year in October, slower compared to 123.1% expansion recorded in September. 

This was the seventh straight month that VoPI grew, as Metro Manila and other areas transition to less strict quarantine measures that have allowed businesses to ramp up operations. 

Why this matters

Economic managers look to manufacturing output as a barometer of economic welfare as it can be an indicator of demand situation in the country, where consumer spending is a major growth driver. When more finished products are coming out of factories, that could mean strong demand from consumers.

In the past months, VoPI had been posting triple-digit growth rates which economists attributed to "base effects". This means that because the pandemic sank the economy to historic-lows last year and crippled factory production, small gains from easing lockdowns would translate to stronger readings this year. 

What analysts say

Nicholas Mapa, senior economist at ING Bank in Manila, said distortions from so-called “base effects” is starting to disappear, thus the slower output growth in October. But as lockdowns continue to ease, Mapa said manufacturing growth can be sustained the next year.

“With those base effects fading, we’ll likely see those growth rates normalize in the coming months. However, given the brisk pace of economic activity, we can expect overall production for value and volume to sustain gains for the most part of 2022, barring of course any possible return to hard lockdowns experienced in the past,” Mapa said in an e-mail.

For Jun Neri, lead economist at Bank of the Philippine Islands, the softer output expansion in October “could simply be a soft patch with some bunching up during previous months.”

“We expect demand for electronic products, food, etc. to remain robust through most of 2022. The current global semiconductor shortage is generally positive for the local electronics manufacturing sector. Hopefully delivery delays will not be a persistent headwind to the sector, especially after the holiday season,” Neri said in a text message.

Other figures

  • Fourteen industries grew in October, led by manufacture of fabricated metal products which went up at a pace of 176.6% year-on-year.
  • Eight industries, led by manufacture of tobacco products, saw output skid in the same month.
  • Less than one-fourth of factories were operating at full capacity as average capacity utilization increased to 67% from 66.6% in September. 




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