Factory activity expands at fastest pace in 9 months

MANILA, Philippines — The Philippines’ manufacturing sector ended 2021 in an expansion mode, hitting a nine-month high amid a reopened economy, but the emergence of the Omicron variant may likely impact chances of a continued recovery, according to market intelligence firm IHS Markit.

IHS Markit said the headline purchasing managers’ index (PMI) fractionally rose to 51.8 in December from 51.7 in November.

The end-2021 headline index continued to register above the neutral 50 mark that separates expansion from contraction. Although modest, the latest reading was the strongest uptick in nine months or since March 2021.

The headline PMI provides a quick overview of the health of the manufacturing sector based on the weighted average of five indicators: new orders (30 percent weight), output (25 percent), job creation (20 percent), supplier delivery times (15 percent) and inventories (10 percent).

The December PMI is still a reflection of the continued recovery of manufacturing in the Philippines as the economy was more open during the month.

In December, Metro Manila and most provinces were under Alert Level 2 as COVID cases dipped to their lowest levels in 2021.

However, the emergence of the Omicron variant is threatening to erase earlier gains as cases are starting to spike again, hitting over 4,000 in the past few days.

The latest wave has prompted the government to raise the alert level status in Metro Manila to 3 until Jan. 15.

“Looking ahead, the Omicron variant will almost certainly hit the Philippines’ manufacturing sector, and in more ways than one. Supply-side issues are likely to persist while case numbers and input price inflation could climb further as we head into the new year,” IHS Markit economist Shreeya Patel said.

Domestic demand conditions continue to be favorable while a slight uptick was noted in output for the first time in nine months.

Patel said firms were optimistic that demand would continue to improve in the coming months and as a result prepared advance ordering strategies.

Production volumes also expanded for the first time in March, although minimal.

With output and new orders on an upward mode, firms reduced their workforces at a softer rate in December. Still, staffing levels fell for the 22nd month as firms had sufficient capacity to deal with demand even as orders increased.

A decline in outstanding business supported this, with backlogs falling at the third-steepest rate in the near six-year history of the survey.

Firms also continued to face supply-chain issues. Vendor performance deteriorated sharply, blamed on tighter virus-related restrictions in international markets and difficulties in obtaining inputs.

“Delivery delays were pronounced and often hindered production. Shortages meanwhile continued to drive up expenses, despite some signs of a moderation in input and output prices in December,” Patel said.