'Fragile' economic recovery crimps factory output in 2022

MANILA, Philippines — Local factory output softened its expansion in 2022, marking a bumpy road for the sector’s recovery from the pandemic which was marred by various headwinds.

Data from the Philippine Statistics Authority showed that the volume of production index (VoPI), a measure of manufacturing output, grew 15.2% in 2022 compared to the previous year. This was slower compared to the average growth rate of 52.6% recorded in 2021, which benefitted from low base effects. 

As it is, the manufacturing sector saw its fortunes rise as the Philippine economy reopened for business early in the second quarter. Its climb proved slow since external headwinds, such as supply chain disruptions, hampered its ascent. 

Economic managers use manufacturing output as a gauge of economic welfare. This indicator measures the demand of consumers and businesses in the country, where consumption is king. 

When demand proves firm, manufacturers tend to hire more workers to keep production churning. In November 2022, factories provided part-time employment for many Filipinos at the advent of the holiday season.

The PSA attributed the slumping output to slower, and even contractions, in some manufactured goods. 

The manufacture of computer, electronic, and optical products, grew at a slower pace of 15.1% in 2022. The manufacture of basic metals shrank 22% in 2022 from 15.4% in the preceding year.

The manufacture of food products slowed to 5.6% in 2022 due to decreasing output observed in the manufacture of prepared animal feeds and processed and preservation of fruits and vegetables.

Zooming in, the December outturn showed that VoPI likewise grew at a softer pace of 4.8% year-on-year. This was smaller compared to the 4.8% recorded in the previous month and the 19.2% in the same period in 2021. 

This was the 19th straight month of expansion. 

Michael Ricafort, chief economist at Rizal Commercial Banking Corp., attributed the slowdown in the sector’s growth to a "fragile" economic recovery from the pandemic. 

“The relatively slower growth in local manufacturing could also reflect the fact that economic recovery could be relatively slower/soft/fragile especially for some businesses/industries, especially those hit hard by the pandemic/lockdowns, but nevertheless in the right recovery path,” he said in an emailed commentary. 

Thirteen industries expanded in December, led by manufacture of fabricated metal products, except machinery and equipment at 52.9% year-on-year.

Eleven industries contracted in the same month. 

A quarter of factories operated at full capacity, as average capacity utilization retreated 71.6% from 72.6% in November. 

Nevertheless, Ricafort remained hopeful for the sector’s growth. 

“One bright spot for manufacturing would be the continued recovery in Philippine exports to near record highs on a monthly basis in recent months, as this would also help exporters and other export-oriented manufacturing industries, in view of the faster economic recovery in the country's biggest export markets such China, Japan, US, and other Asian and European countries, especially those that have massive vaccination towards herd immunity,” he added.