Stock broker SB Equities Inc. said the ongoing strict lockdown, enhanced community quarantine (ECQ), will take a toll on the recovery of the manufacturing sector.
SB Equities said the lockdown will impact the capacity utilization and improved output that the sector has been experiencing in the past months due to restricted mobility and limited spending of consumers.
SB Equities said the Philippine Statistics Authority (PSA) reported that the domestic production posted a 16-month high on improved capacity utilization.
In the first half of the year, exports grew 20.9 percent to $35.9 billion while imports rose 29.8 percent to $53.2 billion Trade-in-goods deficit widened 53.3 percent to $17.4 billion.
SB Equities said the monthly uptick in the production indices is consistent with manufacturing PMI, which reverted above the neutral 50-mark in June and July after running below in April and May.
“We continue to think that the increase in manufacturing production is associated with improvements on the sector’s average capacity utilization rate, which climbed 1.1pp mom at 67.7 percent in June, the highest since March 2020; 15 out of 22 manufacturing subsectors improved their capacity utilization rates on a mom basis,” it said.
“We think the positive merchandise trade growth in June and 1H21 was partly driven by capacity utilization and production improvements in the local manufacturing sector. This is supported by our empirical findings of moderate degree of positive correlation between merchandise trade growth and VaPI/VoPI (value of production index/volume of production index) growth. We also arrived at similar results with respect to manufacturing PMI,” SB Equities said.
“We think the Delta variant transmission and lockdowns in the country and region pose downside risks to the manufacturing and merchandise trade outlook over the near term,” it added.
