The Philippines manufacturing sector has returned to a growth path in February, rising to the highest for over three years, even surpassing the pre-pandemic level.

According to the IHS Markit report on Tuesday, March 1, the Philippines Manufacturing Purchasing Managers’ Index (PMI) increased to 52.8 last month from 50.0 in January this year. The PMI considers new orders, output, employment, suppliers' delivery time, and stocks. Readings above 50 signals growth and below that, a contraction.

Trade and Industry Secretary Ramon Lopez noted that the latest PMI is the highest since December 2018, even way before the pandemic period. The PMI in Feb. 2019 stood at 51.9. Lopez attributed the growth in the country’s manufacturing output to the continued easing of economic restrictions amid the challenges of the COVID-19 pandemic.

IHS Markit said the latest PMI result signaled a resumption of growth in the local factory sector and indicated the strongest improvement in the health of the sector since December 2018.

Shreeya Patel, IHS Markit economist said the relaxation of quarantine restrictions was “no doubt” the latest driver of growth during the month.

Patel also noted that “there were many key takeaways from latest data but central to the improvement were solid expansions in both output and new orders.”

In February, firms mentioned that the wider material availability also prompted the increase in production.

Moreover, new orders rose sharply with manufacturers overwhelmingly mentioning improvements in the domestic demand environment. Exports also rose during the month, bringing an end to four successive months of contraction.

To support output growth, manufacturers also sharply raised their buying activity in February to the steepest for over three years.

“With demand improving, manufacturers increased stockpiling efforts to cater for stronger demand conditions. Pre-production inventories have now increased in each of the last six months,” IHS Markit said.

However, despite solid uplifts in sales, firms still held back on hiring activity. Employment levels have now fallen continuously for two years, with the latest reduction the quickest for five months.

“Anecdotal evidence suggested that resignations drove the decline, rather than firms engaging in cost-saving efforts. Despite lower headcounts, firms kept on top of workloads as signalled by a solid drop in backlogs of work,” IHS Markit said.

Meanwhile, spare capacity allowed firms to add to post-production inventories during February, with stocks rising sharply, and at the quickest rate for five years.

Anecdotal evidence suggested panelists anticipated greater demand in the coming months and added to stock levels in preparation, IHS Markit said.

Still, supply chain issues persisted in February, IHS Markit said, although the extent to which lead times lengthened was the weakest for a year.

Reports of port congestions and transportation bottlenecks persisted, but firms also mentioned improvements in material availability.

As for prices, higher energy, raw material, fuel and transportation costs drove up expenses in the second month of the year.

The rate of input price inflation was robust, and much stronger than the long-run series average. Subsequently, firms raised their selling charges, and at the joint-quickest rate in the current 22-month sequence of inflation.

“Looking ahead, hopes of a return to normality, greater demand and favorable presidential election outcomes underpinned positive sentiment in February. The degree of optimism was below the long-run series average, however,” IHS Markit said.

Lopez noted that last month’s performance is an indication of the sector’s solid growth in output, new orders, and exports thanks to easing of mobility curbs as the Omicron surge fades,” the trade chief said.

“Even before we shifted to Alert Level 2, we have allowed 100 percent operating capacity for all manufacturing, and all exports activities. Thus, with the recent de-escalation of Metro Manila and other provinces to Alert Level 1, we expect March PMI to remain above 50 on sustained manufacturing growth recovery, underpinned by economic reopening and greater mobility," he said.

The latest report showed a resumption of improvement in the Philippines manufacturing sector and indicated the strongest improvement in the health of the sector since December 2018, he pointed out. Growth was centered on expansions in both output and new orders with the rate of increase in the former the quickest for over three years.

Following the effects of the aftermath of typhoon Odette and the surge in COVID-19 cases due to the Omicron variant last month, IHS Markit observed that the boost in new orders and buying activity of manufacturers were due to improvements in the domestic demand environment and has been the sharpest in over three years.

Also exports also rose during the month, bringing an end to four successive months of contraction. “We look forward to a full economic recovery this year as we recently de-escalated to Alert Level 1. Barring other issues, we project to surpass the 2019 GDP levels this year and we remain committed to strengthening our efforts and in adapting our responses to ensure the safety of our countrymen as we reopen more sectors,” said Lopez.(Bernie Cahiles-Magkilat)