The growth of the Philippine factory output likely slowed to 5.1 percent in March after registering 8.4 percent growth in February, the economic research arm of Moody’s Investors Service said.
The growth forecast for March also shows a sharp deceleration year-on-year from the growth of 14.9 percent recorded in March 2015, Moody’s Analytics said.
“Philippine industrial production is forecast to have grown 5.1 percent year-on-year in March following February’s 8.4 percent increase,” Moody’s Analytics said in a weekly outlook, ahead of the release of official data by the Philippine Statistics Authority (PSA) on Wednesday.
The research firm did not, however, provide a forecast for manufacturing value, which expanded 2.8 percent in February, a reversal of a 7.6 percent decline in the same month a year earlier, according to data from the PSA.
Moody’s Analytics pointed out that the main driver of the strong growth in manufacturing output this year has been the revival in food manufacturing.
“This will continue in the coming months with crop yields recovering as the effects from a severe El Niño climate pattern dissipate,” it added.
Manufacturing output as measured by the Volume of Production Index (VoPI) grew at a slower pace of 8.4 percent in February from 34.3 percent in January.
The slower expansion was despite growth in eight out of 20 major industries led by furniture and fixtures food manufacturing, rubber and plastic products, fabricated metal products, machinery except electrical, printing, non-metallic mineral products, and electrical machinery.
To sustain growth
In a separate report on the VoPI following the release of the February data, the National Economic Development Authority (NEDA) said the manufacturing sector is expected to sustain growth this year because of the country’s strong macroeconomic fundamentals, resilient domestic consumption, and upcoming national elections.
“There is a positive business outlook due to anticipated increases in gross revenues and net income of some of the country’s largest corporations,” said Socioeconomic Planning Secretary Emmanuel Esguerra.
This scenario, he added, increases the availability of jobs while stable prices of commodities, government assistance such as the Pantawid Pamilyang Pilipino Program (4Ps), and election-related spending will also provide an additional boost to domestic consumption.
In addition, NEDA said growth in food production is expected to pick up in the coming months as El Niño is anticipated to weaken and fade away during the second quarter of 2016.
Esguerra, who is also the NEDA director general, said that with low global oil prices, lower production costs would encourage expansion of manufacturing production.
“Thus, to maximize low oil prices, the government must ensure that stable macroeconomic fundamentals are sustained and measures to further reduce the cost of doing business are continually pursued,” he said.
Also, access to high-quality raw materials and reliable energy, logistics and other manufacturing-related services must be available to support robust growth of manufacturing output, he added.
Esguerra also stressed that strategic investments in research and development must be pursued.
The development of new products and services and the improvement of existing ones will enhance the competitiveness of local players in the global market,” he concluded.
Enhancing agri capability
For its part, the Department of Finance (DOF) said despite the expectation that the drought will start to weaken in the second quarter of the year, the government should continue its programs to enhance the capability of our agriculture sector to withstand El Niño.
In its latest economic bulletin, the DOF recommends that the government could tap more technological resources to build more efficient irrigation systems.
“For short-term measures, the government should continue its support for drought-affected farmers through distribution of drought-resistant varieties and cloud seeding operations,” it said.
Meanwhile, the agency said low oil prices would continue to enable local producers to produce more goods at a lower cost.
In February 2016, Dubai crude oil price dropped by 52.8 percent year-on-year. This will contribute to the decline in producers’ price index, it said.
Lastly, DOF said robust domestic consumption and strong macroeconomic fundamentals would boost the growth of the manufacturing sector.
“To ensure continued interest by investors, the country should continue to pursue infrastructure development and reform business procedures to hasten the process of doing business in the country,” it said.