Factory growth slows ‘noticeably’
BUSINESS for factories in the country improved further in January, but such growth slowed “noticeably” as new orders and output increased at “the weakest pace in four months,” according to the latest monthly survey IHS Markit conducted for Nikkei, Inc.
The seasonally adjusted Nikkei Philippines Manufacturing Purchasing Managers’ Index (PMI) fell to 51.7 last month from 54.2 in December and 52.7 in January 2017, “signalling only a modest improvement in the health of the sector,” in contrast with “solid expansion in recent months.”
“The latest reading was the third- lowest in the survey history” that began in January 2016 for the Philippines and the lowest since September 2017’s 50.8, the report read.
A PMI reading above 50 suggests improvement in business conditions compared to the previous month, while a score below that signals deterioration.
The manufacturing PMI is composed of five sub- indices, with new orders having the biggest weight of 30%, followed by output ( 25%), employment (20%), suppliers’ delivery times ( 15%) and stocks of purchases (10%).
“January data suggested that demand was partially hit by higher excise taxes which were effective from January 2018,” the report read.
“Growth in new business intakes slowed to the weakest since September, prompting a marked deceleration in output growth,” the report said, while noting that production volumes grew “at one of the slowest rates since the survey started in January 2016.”
Republic Act No. 10963, or the Tax Reform for Acceleration and Inclusion Act (TRAIN) imposes higher excise tax rates on fuel, automobiles, tobacco, coal and minerals, as well as a new levy on sugar-sweetened beverages and cosmetic surgery, among others. At the same time the law strips out some value-added tax exemptions, while reducing personal income, estate and donors tax rates.
IHS Markit Principal Economist Bernard Aw added that the uptick in manufacturing input prices “could pose as a downside risk to future growth.”
January also saw buying levels increase “the slowest since August last year.”
“Survey data showed input costs increasing sharply and at one of the fastest rates in the survey history, pushing Filipino manufacturers to raise selling prices at a record pace,” he said in the report’s commentary.
Aside from the higher excise taxes, Mr. Aw noted that “a weak exchange rate and higher global commodity prices — especially in oil, metal and plastics — all pushed inflation higher.”
Still, elevated business confidence remain seemed to set the stage for the months ahead.
“But other survey indicators suggest that firms are likely to look past the near- term slowdown towards stronger growth in the year ahead. The Future Output Index remained elevated, with a majority of panel respondents anticipating higher production over the next 12 months,” said Mr. Aw, who linked the optimism to higher sales projections, greater operating capacity, new product models, planned business expansion and a robust economic outlook.
Sought for comment, Michael L. Ricafort, head of Rizal Commercial Banking Corp.’s Economics & Industry Research Division, said he expects manufacturing to pick up as reduced personal income tax rates under TRAIN should shore up consumption, while increased imports of capital goods in recent months signal a sustained increase in production.
“Lower individual tax rates will result in higher consumer incomes and higher consumer spending power that would benefit consumer-related industries in terms of higher sales/ demand for consumer goods,” Mr. Ricafort said in an e-mail yesterday.
“The continued growth in both local and foreign investments, as well as some recovery in exports, would lead to some pick up in manufacturing activities, especially as additional manufacturing facilities are added, as manifested by increased importation activities in recent months (especially on capital goods, raw materials and other production inputs)…”