Survey shows factory closures slashing manufacturing output in April

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Metro Manila (CNN Philippines, May 4) — Factory output contracted in April after three months of expansion with recent stricter quarantine rules prompting factories to close down, a recent survey among local manufacturers revealed.

The IHS Markit Philippines Manufacturing Purchasing Managers’ Index (PMI) logged a value of 49.0 points during the month, down from the 52.2 in March and the neutral 50.0 value separating contraction and expansion.

“April survey data revealed a setback for the Filipino economy, with operating conditions falling back into contraction territory after only one full quarter of growth,” said IHS Markit economist Shreeya Patel on the survey results, which were published earlier this week.

Patel noted that tighter quarantine rules “led to another round of factory and business closures, with output particularly hard-hit.” During the survey period, the government placed Metro Manila, Bulacan, Cavite, Laguna and Rizal — also known as the National Capital Region Plus — under a stricter general (enhanced?) community quarantine bubble in late March to curb the alarming spike in daily COVID-19 cases at the time.

This eventually led to a two-week ECQ which ran from March 29 to April 11, shifting to looser modified ECQ which is in place in the area until May 14.

IHS Markit noted that many clients opted to suspend their operations as demand dropped for the first time since December last year.

“Domestic demand was especially subdued with the rate of reduction among the sharpest in the series. Higher sales to European markets which have begun to gradually reopen, reportedly led to a softer deterioration in exports, however,” said the American-British information services provider.

It likewise reported firms scaling back on hiring during the month, with survey participants mainly citing a weak demand environment and voluntary resignations for the drop in employment.

With this, IHS Markit flagged how job shedding has been observed monthly since February last year.

Local manufacturers were seen with large capacity due to a sustained period of settling backlogs, the information analytics company said.

Meanwhile, producers of goods saw “another severe decline” in the performance of suppliers, IHS Markit said, adding that respondents attributed this to pandemic-induced restrictions “markedly” increasing lead times and limited availability of raw materials.

With this, manufacturing firms faced more surcharges and higher freight costs.

The renewed fall in output and new orders prompted companies to cut on their purchasing, said IHS Markit. Pre- and post-production inventory growth, on the other hand, moderated with a weaker demand environment and greater raw material costs.

The rise in prices of raw materials coupled with input shortages were also reported widely in April, noted IHS Markit.

“Input price inflation accelerated for the sixth month running, with the latest uptick the strongest in over two-and-a-half years,” it noted.

This supposedly led to a quicker uptick in output charges set by manufacturers, said IHS Markit, with firms deciding to pass greater costs to clients partially.

IHS Markit also flagged the decreases in production and new orders hitting business confidence in April, noting this resulted in the “degree of optimism regarding an increase in output over the coming year dropping to an eight-month low.”

“Despite this, the outlook remained positive overall with mentions of vaccination efforts fuelling hopes,” said IHS Markit.

The Philippine government began its vaccination drive in March, with the hope of inoculating 50 to 70 million Filipinos against the deadly virus by year-end.