Factory production in March falls, the steepest in almost two years

PHILIPPINE FACTORIES have theirs worst performance in 23 months after output fell 0.8% in March, according to the local statistics office.

This was a reversal from February’s 7.2% growth, based on the results of the Philippine Statistics Authority’s (PSA) Monthly Integrated Survey of Selected Industries. Factory production rose by 6% in March last year.

Robert Dan J. Roces, chief economist at Security Bank Corp., blamed rising material costs and declining domestic demand for the decline in output, as measured by the manufacturing volume index.

“A deterioration in business activity as a result appears likely given the substantial decline in production compared to February’s revised growth,” he said via Viber.

The production decline signals potentially weaker demand and production challenges, he added.

Month on month, manufacturing output increased by 0.8%, compared to 0.5% in February. Excluding seasonal factors, factory production fell 4.7%.

Output growth slowed to 3% last quarter, compared to 5.5% a year earlier.

This was probably due to…Fration, high interest rates and global economic uncertainty, Mr Roces said.

InFInflation accelerated for the third month in a row to 3.8% in April. In March this was 3.7% and in February 3.4%.

Markets expect the Philippine central bank to postpone interest rate cuts as a result. The Monetary Board has kept its policy rate at a 17-year high of 6.5% after raising it by 450 basis points (bps) between May 2022 and October 2023.

Philippine Chamber of Commerce and Industry (PCCI) President George T. Barcelon attributed the contraction in March to weak retail demand, the depreciation of the peso against the dollar and higher import costs.

Manufacturers were also unable to pass on their costs given the weak market, he said by telephone. Mr. Barcelon expects factory output growth to slow this year.

The average occupancy rate averaged 75.3% in March, compared to 75.1% a month earlier and 73.6% a year ago.

In contrast to the PSA report, the S&P Global Purchasing Managers’ Index (PMI) for March was 50.9, indicating that factory activity was growing, albeit more slowly than in January.

A figure above 50 indicates an expansion in manufacturing activity, anything below 50 indicates the opposite.

The index was 52.2 in April, the strongest improvement in April Ffive months.

The statistics agency said the decline in factory output in March was driven by food production, which shrank by 8.1%. Food products account for 18.7% of manufacturing activity.

Also contributing to the decline were computer, electronic and optical products, whose growth slowed to 5.3%, and coke and refined petroleum products, whose growth slowed to 10.2%.

Of the remaining 19 industrial divisions, 12 posted annual declines, while seven posted higher growth, the PSA said.

The production of chemicals and chemical products saw the highest growth at 29.1%. — Abigail Marie P. Yraola