Angelo Taningco
Economist, Treasury Group

Philippine manufacturing sector was deemed to have expanded at a slower pace in July compared to June, at least based on the latest trend in the Nikkei Philippines Manufacturing Purchasing Managers’ Index (PMI), which fell to 52.8 last month from 53.9 in the previous month. July’s PMI figure is the second-lowest for the year-next to its January reading of 52.7-and since the PMI data was launched on January 2016 (Figure).

Figure: PMI Manufacturing, Jan. 2016 – Jul. 2017

 
Nikkei reported that the month-on-month (mom) drop in the PMI was based on growth slowdowns in production, employment, new orders, and exports that arose from softening domestic and external demand as well as from manufacturers’ concerns over the martial law extension in Mindanao; nevertheless, business optimism continued to be high, it added.

Moreover, Nikkei documented that input costs rose on a mom basis in July amid monthly increase in import costs induced by the peso depreciation, leading manufacturers and suppliers to raise product prices. Notably, this is consistent with our expectation of an uptick in inflationary pressures for the month, with our July headline inflation forecasts at 0.2% mom and 2.9% yoy.

We think that this easing of manufacturing growth in July may have an adverse effect on the merchandise export performance for the month. This is because manufactured products account for the bulk of total goods exports, with its January-May export share at 85%. Likewise, we surmise that this slowdown in manufacturing could be temporary on the back of high business optimism; but if it persists in the next two months, then this could drag Q3 GDP growth. Note that goods exports and manufacturing sector’s gross value added comprised 16% and 20% of GDP, respectively, in 2016.

Disclosures Appendix
This material is confidential and intended for suitable counterparties. The data and information provided in this report accurately reflect the personal views of the specialists or were obtained from public sources believed to be reliable. No representation or warranty as to its accuracy or completeness, express or implied is hereby made, and the investor should not rely thereon without making any independent analysis or research on any topic therein. Any opinion or advice expressed herein may change without notice.

This report is not to be taken as an offer to sell or buy securities or any investment. Security Bank Corporation denies any liability that may arise out of any loss or may result in actual, direct or consequential damage from the use or reliance on any material hereof. Reproduction of this material, whether in whole or in part, is strictly prohibited without the prior consent of Security Bank Corporation. Security Bank Corporation, its directors, officers or staff or any of its subsidiary or affiliates may have taken a short or long position in any investments or securities mentioned herein upon the presentation of this report and may buy or sell the investments or securities at any time in the open market or otherwise, either as broker, dealer, principal or agent.