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Feb. Philippine factory growth slowest in SE Asia

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THE PHILIPPINES contributed to an overall improvement of Southeast Asian factory business in February, though it bared the weakest performance among five economies in the region that registered growth, according to the Nikkei ASEAN Manufacturing Purchasing Managers’ Index (PMI) released on Monday.

The Philippines’ 50.8 PMI reading last month reflected continued improvement from January, but it was the slowest growth compared to Vietnam (53.5), Myanmar (52.6), Indonesia (51.4) and Thailand (50.9).

Feb. Philippine factory growth slowest in SE AsiaA PMI reading above 50 suggests improvement in business conditions from the previous month, while a score below that signals deterioration. The manufacturing PMI — a composite index designed to provide a snapshot of the health of the manufacturing sector each month — 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%).

Malaysia and Singapore signaled contraction with PMI readings of 49.9 and 46.8, respectively.

The Philippines’ reading was just slightly better than the 50.7 of covered members of the Association of Southeast Asian Nations (ASEAN).

“February data continued to show a relatively broad-based upturn, with five of the seven countries covered by the survey reporting an improvement in business conditions, unchanged from the start of the year,” the report read, noting that “[e]xpansions in output, new orders and employment were all faster than in January.”

It noted, however, that “the Philippines dropped to fifth place as tax reforms continued to limit growth”.

And while February saw manufacturers across the region facing “higher input costs, which saw them passing on some of the increase to customers… [t]he Philippines saw the strongest rate of cost inflation across the region as new excise taxes pushed up input prices.”

The first of up to five planned tax reform packages, Republic Act No. 10963 — also known as the Tax Reform for Acceleration and Inclusion Act (TRAIN) that took effect on Jan. 1 — cut personal income tax rates in a bid to give households more money to spend and more than made up for estimated foregone revenues by adding taxes on cars, fuel, minerals, coal, sugar-sweetened drinks, tobacco products, some investment products, cosmetic surgery and a host of other items, besides removing value added tax exemptions of several sectors.

The entire program is geared towards shifting the tax burden to those who can afford to pay more, while adding to collections.

But it has been widely expected to spur inflation and dampen consumption of affected items, although the Finance department estimates the increment to inflation capped at about 0.7 of percentage point in the first year of TRAIN’s implementation.

Headline inflation clocked four percent in January — the fastest clip in more than three years that compared to the Bangko Sentral ng Pilipinas’ (BSP) 2-4% target range and 4.3% forecast average for full-year 2018 — and is expected by BSP to have sped to 4-4.8% last month, while a BusinessWorld poll of economists late last week yielded a 4.2% median.

Output in Southeast Asia grew “at the strongest rate in 10 months”, fueled by higher new orders, and “the rate of job creation was the strongest recorded for 20 months,” read the report of IHS Markit, which conducts the monthly survey for Nikkei, Inc.

The Nikkei Philippines Manufacturing Purchasing Managers’ Index released on Friday last week showed the reading at its lowest in five months in February, matching that of September last year and the second-slowest pace — after August 2017’s 50.6 — since at least August 2016. IHS Markit began the Philippine leg in January 2016. The Philippine PMI clocked 53.6 in February last year.

The latest Philippine data, collected last Feb. 12-21, showed faster increases in output and new orders that were offset by “the first drop in staffing levels since September 2017… at the steepest pace in the [Philippine] survey history.”