PH factory output tumbles on weak global demand, El Niño

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THE manufacturing sector registered declines in volume and value last May on weak global demand and the prolonged El Niño dry spell, the National Economic and Development Authority (NEDA) revealed on Friday.

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Factory output as measured by the volume of production index (VoPI) dropped 3.1 percent year-on-year, from a revised increase of less than 0.1 percent in April and 12.7 percent in May last year, NEDA said, citing the latest Monthly Integrated Survey of Selected Industries (MISSI) from the Philippine Statistics Authority (PSA).

The VoPI was also a far cry from the 3.5 percent growth forecast for the month by Moody’s Analytics.

Half of the 20 major sectors reported declines, with footwear and wearing apparel, wood and wood products, basic metals, food manufacturing, and beverages leading the drop in production, the PSA said.

VaPI
The value of production index (VaPI) showed that manufacturing output in May shrank by 7.3 percent year-on-year, from a revised 5.6 percent drop in April, reversing the 11.4 percent increase a year earlier.

Nine out of 20 major sectors recorded two-digit decreases in production values, particularly wood and wood products, furniture and fixtures, petroleum products, footwear and wearing apparel, basic metals, food manufacturing, and electrical machinery.

Optimism
However, NEDA remains optimistic about the business outlook despite the slowdown in manufacturing activity.

“The low inflation environment, lower oil prices, continued inflow of remittances, expected strong demand from government expenditures, and the brisk business activity in the nearing election season, will all help improve the sector’s performance in the coming months,” said NEDA Officer-in-Charge and Deputy Director-General Emmanuel Esguerra.

The manufacturing sector’s volume and value reflect a positive 4.0 percent uptick over the three-month moving average, according to NEDA.

“With the proper implementation of the Competition Law and the Philippine Archipelagic Sea Lanes Act, we expect improvement in the business climate,” Esguerra noted.

The Comprehensive Automotive Resurgence Strategy will attract foreign investments and spur growth in the transport equipment sector as well as textiles, glass, rubber and plastics, electronics and other related products.

“Efforts to pursue higher-value products and processes and new markets must be encouraged to maintain competitiveness and compensate for the fragile export performance of the manufacturing sector,” Esguerra said.

Small and medium enterprises should be enabled to participate in the global value chain and maximize the benefits of free trade while minimizing vulnerabilities from an uncertain global demand, according to NEDA, saying the upcoming single market of the Association of Southeast Asian Nations presents opportunities for manufacturing sector can take advantage of in the near term.

“Long-term measures such as reliable water supply must also be put in place to battle the possibility of another dry spell in the second half of 2015. The integration of agriculture and the manufacturing sectors, supported by efficient transport infrastructure, will be needed to spur growth,” said Esguerra.

Utilization
The average capacity utilization of manufacturing firms in May slightly grew to 83.3 percent year-on-year, with 11 of the 20 major industries registering utilization rates of 80 percent and above, NEDA noted.

Net sales by volume and value fell during the month. The volume of net sales index slipped 7.7 percent while the value of net sales index dropped 11.7 percent.

NEDA said the food sub-sector took a year-on-year drop of 13.1 percent in terms of production and net sales from a 6.6 percent growth with the sugar industry bearing the brunt of the drought.

Petroleum output registered a 23 percent drop in production an 29 percent in value.

On a positive note, NEDA said a rebound in the petroleum sub-sector is in the offing with the Bataan Refinery Master Plan 2 of Petron commencing commercial operations by the end of the second quarter.

“The facility will be the first to produce high value fuels in compliance with the Euro-5 standard, which will augment both local and export supplies,” Esguerra noted.

NEDA said electrical machinery, the country’s top export product, contracted in both volume and value due to declines in shipments to China and Singapore.

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