Cautious factories slow decline in output to close 2020

by Ian Nicolas Cigaral (Philstar.com), 5 Feb 2021

MANILA, Philippines — Local factories ended last year with a more tempered slump in output, as a seasonal uptick in demand during the holidays provided the impetus to manufacturers to pick up the slack in December.

A monthly survey of selected industries showed Volume of Production Index (VoPI), a measure of factory output, contracted 2.8% year-on-year in the final month of 2020, softer than 8.6-percent decline in November, the Philippine Statistics Authority reported Friday.

With output on a downtrend since lockdowns were imposed March, the milder slump in December — typically a strong month because of the Christmas season — was good news for a government desperately trying to reenergize demand in a consumption-reliant economy battered by the pandemic.

Already, analysts’ advance estimates are painting a better outlook for this year. Four days ago, IHS Markit, a British information provider, estimated the Philippines’ purchasing managers’ index to have risen to 52.5 in January, the highest level in over 2 years and setting above 50-mark which separates growth and decline.

But Ruben Carlo Asuncion, chief economist at Union Bank of the Philippines, still sees some fragility in the rebound. “It may mean that firms have been adjusting to the rise in demand, but because of the impact of the pandemic on a lot of ways it may have affected production overall,” Asuncion said in a text message.

“It’s still hard to conclude a more sustained recovery at this point,” he added.

Cid Terosa, senior economist at University of Asia & the Pacific, agreed with Asuncion. “If improvement in the VoPI can be sustained in the first 2 months of 2021, I believe recovery is underway,” Terosa said in a text message.

“As it is, I see an amount of fragility in the rebound since the threat of new variants of the coronavirus, the upswing in cases in the Philippines and around the world, and the slow rollout of vaccines continue to hound domestic producers and dampen market optimism,” he added.

Those dismal observations may have some basis. Despite the moderated slump, factories were still running below capacity in December. Average capacity utilization of manufacturers slightly fell to 72.8% that month from 71.8% in November.

Breaking down the manufacturing report, only five industries grew in December namely paper and paper products which expanded 26.8% year-on-year, followed by chemical products (7.5%), electrical machinery (5.7%), food (5.4%) and rubber and plastic products (4.9%).

Overall, tobacco products led the pack of losers in December, sinking 46% from year-ago levels.