Angelo Taningco
Economist, Treasury Group

The expansion of the manufacturing sector continued in June, albeit a less robust performance compared to May, with the Nikkei Philippines Manufacturing Purchasing Managers’ Index (PMI) slipping to 53.9 for the month compared to its six-month high of 54.3 posted in May, according to the latest PMI report of IHS Markit released on 3 July (Figure 1)

Figure 1: Monthly Nikkei Philippines Manufacturing PMI
Jan. 2016 – June 2017

 
The monthly drop in the PMI during June can be attributed to a slower rate of growth in the manufacturing sector’s output volume and new goods orders; we posit that this trend might have been influenced by a potential slowdown in inflationary pressures during June with the increase in output prices of manufactured items at a slower pace compared to the rise in the sector’s input costs.

Meanwhile, new export orders for domestically-made manufactured goods surged in June from May and we think the depreciation in the Philippine peso coupled with improving manufacturing sector performances in the country’s major export destinations such as China and Japan in the same period were likely to have driven the sharp growth in new export orders. Since manufactured items account for the bulk of the country’s total exports, this upward trend in the new export orders index for the manufacturing PMI could potentially raise the overall merchandise export growth and thereby help narrow the merchandise trade deficit.

On a quarterly basis, we computed the average manufacturing PMI to be at 53.8 in Q2 2017, higher by 0.4 points from the Q1 2017 average (Figure 2); this could be a cue for a stronger Q2 2017 growth in the manufacturing sector’s gross value added (GVA) as well as in the overall economy especially since the sector’s GVA accounts for 20% of nominal gross domestic product (GDP).

Figure 2: Quarterly Estimates of Nikkei Philippines Manufacturing PMI,
Q1 2016 – Q2 2017

 
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