By Justine Irish D. Tabile, Senior Reporter
PHILIPPINE manufacturing activity is predicted to proceed expanding in the following few months amid easing oil prices, although economists warned the looming El Niño, renewed Middle East tensions and rising labor costs could slow growth momentum.
“We see further manufacturing condition improvements in the approaching months as softer global oil prices allow firms to normalize operations,” University of Asia and the Pacific economist Marco Antonio C. Agonia told BusinessWorld via e-mail.
Mr. Agonia pointed to the most recent S&P Global Philippines Manufacturing Purchasing Managers’ Index (PMI) data showing that firms are continuing to ramp up manufacturing and buying activities as pre-oil crisis inventories have already been depleted.
The Philippines’ PMI reading barely improved to 50.9 in June from 50.8 in May, marking a second straight month of expansion in factory activity. A PMI reading above 50 indicates improving operating conditions, while a reading below 50 signals contraction.
Mr. Agonia said he expects some improvement in manufacturing activity “because the expected second-half rebound stimulates business and household confidence.”
He noted that the oil refining and consumer goods manufacturing sectors will likely drive factory activity in the approaching months.
“Assuming no further significant shocks to the economy, consumers will likely reorient budgets towards the same old fourth-quarter holiday rush and manufacturers can go on with raw material purchasing,” he said.
“Price effects from still-elevated domestic pump prices will even incentivize more refining activity.”
Nevertheless, Mr. Agonia said headwinds in the shape of renewed Middle East tensions and the looming super El Niño weather event may dampen recovery.
The Philippine Atmospheric, Geophysical and Astronomical Services Administration earlier said that the country may encounter a “strong” El Niño season from September to November, which could intensify right into a “very strong” one starting October.
“The upcoming El Niño season may drag manufacturing sector growth if it proves to be severe,” said Mr. Agonia. “Extreme weather events can damage agro-industry supply chains, especially for manufacturing categories with direct inputs from the agricultural sector.”
Citing the 1998 El Niño episode, he said each the agriculture and industry sectors posted annual declines.
Meanwhile, the conflict within the Middle East, which began in late February, stays unresolved. Earlier this week, the US military began fresh strikes near the Strait of Hormuz and coastal areas in Iran.
Iran has again closed the Strait of Hormuz, where a fifth of world oil and gas shipments go through, raising fears of further supply disruptions that can drive up prices.
The Philippines is under a one-year state of national energy emergency until March 2027, as soaring global oil prices dampen economic activity.
Reyes Tacandong & Co. Senior Adviser Jonathan L. Ravelas said manufacturing activity will remain in expansion territory in the approaching months, supported by easing inflation, resilient consumer spending, infrastructure projects and improving business sentiment.
“Domestic demand should proceed to be the first growth engine, particularly for food and beverage, consumer goods, and construction-related industries,” Mr. Ravelas told BusinessWorld via Viber.
Nevertheless, he said softer global demand, trade uncertainties, geopolitical tensions and volatile energy costs could moderate the pace of growth.
“Overall, the outlook is cautiously optimistic, with the sector more likely to grow steadily so long as domestic demand stays healthy and policy conditions remain supportive,” he added.
Nevertheless, Ateneo de Manila University economist Leonardo A. Lanzona, Jr. cautioned against reading an excessive amount of into the most recent PMI data, noting that the June expansion remained modest.
“Given the reading is barely above the 50 line, still-soft export orders, and cautious forward expectations, I’d treat June as tentative stabilization slightly than a growth trend you may bank on for the third quarter,” he told BusinessWorld via e-mail.
Mr. Lanzona said manufacturing stays “improving but fragile,” particularly because the recently approved dual-tranche P85 wage hike within the National Capital Region (NCR) and protracted core inflation proceed to pressure production costs.
The minimum every day wage in NCR will increase by P60 on July 25, and by P25 in January 2027.
In June, core inflation, which discounts volatile fuel and food prices, quickened to a 31-month high of 4.4% in June. This despite headline inflation easing to six.4% from 6.8% in May.
Mr. Lanzona’s concerns were reflected within the slower pace of factory output growth in May. Preliminary data from the Philippine Statistics Authority showed manufacturing output, as measured by the quantity of production index, grew by 10.2% 12 months on 12 months in May amid weaker output of transport equipment, food products and chemicals.
Although this marked a reversal from the 0.3% contraction recorded in the identical month a 12 months earlier, it was slower than the revised 11.7% growth posted in April.