Mfg activities continue to slow in Feb

Domestic manufacturing activities continued to slow in February, weighed down by higher excise taxes imposed at the start of the year, results of the Nikkei Philippines Manufacturing Purchasing Managers’ Index (PMI) survey released yesterday showed.

The headline PMI registered a reading of 50.8 in February, the second lowest mark since the survey for the Philippines was started in January 2016. This, however, remains within expansion territory as a reading of below 50 indicates decelerating business conditions.

The headline PMI is a composite index based on five key indicators: new orders, output, employment, suppliers’ delivery times and inventories of inputs. It is designed to provide a quick snapshot of the performance of the manu- facturing sector each month. In January 2018, the PMI stood at 5I.7.

Increases in output and new orders were seen during the period but remain below historical averages, said IHS Markit, the firm that collated data for the PMI.

Export sales also remained weak, falling for the second straight month.

Local manufacturers were also hard-pressed to protect profit margins due to inflationary pressures. The combination of higher prices for raw materials, particularly for oils, plastics and paper, weaker exchange rates and new excise taxes were the main drivers for increases in production cost.

“Survey data suggested the new excise taxes, which were implemented at the start of the year, continued to have an adverse impact on demand. While growth in output and new orders picked up from the lows in January, their rates of increase remained well below historical averages. Export sales also weakened further,” said IHS principal economist Bernard Aw.

To preserve profits, firms passed on some of the additional expenses to consumers. This resulted in a record high in the average charges for manufactured goods, the survey showed.

Companies also laid off more workers at the fastest rate in survey history, reversing four months of job gains.

“The persistent lack of capacity pressure, as indicated by declining backlogs, weighed on hiring,” said Aw.

Economic managers have said inflationary effect of the first package of tax reform is only transitory and is expected to ease in the coming months as the market adjusts.

Aw cautioned, however, that the current conditions point to continued rise in the prices of goods and may force the Bangko Sentral ng Pilipinas to raise interest rates to rein in inflation.

“While the influence of tax reforms is expected to fade in the coming months, price pressures could still become more entrenched on rising imported inflation, which will add to calls for the Bangko Sentral ng Pilipinas (BSP) to raise interest rates,” he said.

The BSP now expects headline inflation to breach the 2.4 percent target range this year because of the tax impact on consumer prices.