Philippine manufacturing is expected to sustain its expansion this month as latest data showed output globally hit an 11-year high in May.
Stockbroker SB Equities Inc. said the continued expansion, however, “hinges on a sustained robust global manufacturing growth, which reinforces new export orders, and improvements in local new orders and production amid a less stringent community quarantine classification in key manufacturing areas.”
“The extension of GCQ (general community quarantine) in NCR (National Capital Region) Plus (Bulacan, Cavite, Laguna, Rizal) spanning 1-15 June and potentially until the second half of the month could help improve workers’ mobility and productive capacity of the country’s manufacturing sector,” SB Equities said in a report.
“Against this backdrop, we expect the Philippine manufacturing PMI (Purchasing Managers Index) to nudge higher and breach 50 this month,” it added.
SB Equities, however, said the momentum could be stymied by a reimposition of hard lockdown in the NCR and surrounding areas, “especially if both coronavirus new cases and healthcare capacity utilization would again increase sharply.”
SB Equities made the statement after the JP Morgan Global Manufacturing Purchasing Managers Index (PMI) in May, which is jointly produced by JP Morgan and IHS Markit, rose for the fourth month in a row to 56, an 11-year high.
“The uptick mainly stems from faster growth in new orders, including new export orders, that was partially offset by slower increase in production and employment. Prices of manufactured goods increased at a faster clip. US and the Euro area were among the major economies that recorded relatively strong manufacturing expansion for the month,” it said.
Most East Asian countries meanwhile experienced moderation in manufacturing growth for the period due to “supply chain disruptions exerting upward price pressures.”
Asean’s manufacturing PMI dipped 0.1 points month-on-month at 51.8 in May amid decreases in Malaysia, Thailand and Vietnam that were nearly offset by increases in Indonesia, Myanmar, Philippines, and Singapore. Asean countries with manufacturing PMI readings below the neutral level of 50 were Myanmar, Philippines, and Thailand.
SB Equities said the manufacturing index in the Philippines has remained below 50 for the second month in a row at 49.9 in May, though higher than April’s 49, denoting a milder manufacturing contraction.
“IHS Markit has reported a sharp reduction in manufacturing production due to business closures, workforce reductions, and raw material shortages. We attribute the constrained productive capacity of the sector to hard lockdowns imposed in the NCR Plus such as stringent modified enhanced community quarantine in the first half of May and GCQ for the remainder of the month,” it said.
“Meanwhile, domestic new orders of manufactured goods fell marginally, with IHS Markit suggesting an improvement on the demand-side with global new orders depicting strong external demand,” it added.
