Manufacturing output falls 4.2% in value

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Factory output in April fell in value terms, reversing growth from the same period last year as production in eight major sectors led by petroleum products slumped, preliminary data released by the Philippine Statistics Authority (PSA) on Wednesday showed.

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As measured by the value of production index (VaPI), manufacturing output in April fell 4.2 percent year-on-year, turning around from a 10.9 percent increase a year earlier and a revised 9.7 percent rise recorded in March this year.

By volume, production during the month rose a slight 1.4 percent year-on-year as measured by the volume of production index (VoPI), decelerating drastically from a revised 16.1 percent surge in March and a 10.8 percent increase in April last year, according to the PSA’s latest Monthly Integrated Survey of Selected Industries (MISSI).

The VoPI growth rate also fell far short of the 5.8 percent rise forecast for April by Moody’s Analytics.

The mild expansion in volume came mainly from 13 major sectors, led by chemicals, tobacco, furniture and fixtures, basic metals, textiles, printing, machinery except electrical, paper and leather products, as well as beverages, the data showed.

“The heavily weighted sector of petroleum products [registered]the largest decrease, with 34.6 percent,” the PSA said.

Other sectors that reported two-digit declines were miscellaneous manufactures, food manufacturing, wood and wood products, it added.

Preparing for risks ahead

The National Economic and Development Authority (NEDA) also warned of the effects of El Niño, saying its impact on the economy and continuing uncertainty in the global markets still pose significant risk to the manufacturing sector.

NEDA Director-General and Socioeconomic Planning Secretary Arsenio Balisacan said the government will have to do more to stimulate economic activity, especially to strengthen the links between agriculture and manufacturing.

“Production would need to diversify further into [other]areas and sub-sectors. For this to be realized, an efficient transport and logistics network should be put in place,” he said.

He also reiterated the country’s need to continuously undertake measures to improve the business climate, address the long-standing power security issues and diversify the country’s range of products.

Balisacan said there is a need to enhance the ability of small and medium enterprises (SMEs) to participate in regional and global markets, in line with the impending economic integration of the Association of Southeast Asian Nations (Asean) and pursue the diversification of export products and markets.

“This is vital to sustain the global competitiveness of the country and survive the low demand from the country’s top export markets,” he added.

Capacity utilization
The MISSI report showed that production capacity utilization in April for all forms of manufacturing stood at an average 83.5 percent, with 10 of the 20 major industries registering capacity utilization rates of 80 percent or more.

The NEDA said the basic metals sub-sector had the highest average capacity utilization at 88.8 percent in April, slightly higher than the year-earlier rate of 88.5 percent.

“Since basic metals are among the backbone industries with high forward linkages, its high average capacity utilization will enhance firms’ capacity to respond to the increasing demand of other sub-sectors, particularly rapid growth in private construction and the expected realization of government infrastructure projects,” Balisacan said.

Net sales by volume and value also fell during the month. The volume of net sales index in April slipped 3.6 percent while the value of net sales index dropped 8.9 percent.

Confidence remains
Balisacan pointed out, however, that investor confidence remains reflected in some production expansion projects being undertaken in the country.

“Proof of this is the recent expansion of Taiheiyo Cement Philippines, Inc.’s facilities in San Fernando, Cebu to boost its productive capacity in anticipation of higher demand for construction materials,” he said. A number of Japanese firms are also poised to relocate to the country.

“In addition to the supply of skilled labor, some firms also want to maximize duty-free benefits in the Philippines under the European Union’s Generalized Scheme of Preferences Plus,” he added.

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