Philippine manufacturing slows in July

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Metro Manila (CNN Philippines, August 1) — The Philippine manufacturing sector posted a weak growth last month.

Japan-based economic news agency Nikkei, with United Kingdom-based think tank IHS Markit, seasonally review the purchasing managers' index (PMI) of 40 key countries across the globe. This measures the growth of their manufacturing sector.

In its latest PMI report, Nikkei said the Philippine manufacturing sector grew at 50.9 in July, slower than the 52.9 growth in June. This was also the lowest reading in five months, posting only a marginal improvement in the sector.

"Nikkei PMI data pointed to a slowing of growth momentum for the Philippines manufacturing sector at the beginning of the second half of 2018, following a modest performance in the first half," said Bernard Aw, principal economist of IHS Markit.

Nikkei noted that there were signs of less demand for Philippine manufactured products in July. This reflected in slower sales, which led firms to scale back production.

"New business grew at a much slower rate in July after a solid second quarter, despite a strong pickup in export sales. Slowing demand presents a worrying development and raises questions whether the recovery from the rollout of new excise taxes at the start of this year is losing steam," Aw added, citing the Tax Reform for Acceleration and Inclusion (TRAIN) law, which imposed new excise taxes on fuel, sweetened beverages, tobacco, alcohol, and luxury vehicles.

TRAIN, as well as higher fuel prices and a weaker peso, led to an increase in selling prices of Philippine manufactured products. With other manufacturing costs staying at relatively the same level, inflation has had an effect on the earnings of manufacturers.

"Input cost inflation remained marked in the manufacturing sector during July which, in turn, led to further increases in selling prices. Although charges were raised at a notable pace, the rate of increase remained far weaker than that of costs, suggesting pressure on profit margins," Aw said.

There was also lower payroll numbers recorded in July, with employees voluntarily leaving the company cited as the most common reason.

Sought for comment, Trade Secretary Ramon Lopez said that he expects a recovery in the manufacturing sector, partially due to the TRAIN.

"Still bullish on manufacturing considering that it is the sector that accounts for higher growth rate than others in the total growth in investment levels," Lopez told CNN Philippines.

The Trade Secretary said that with more Filipinos reaching the working age of 23 years old, low unemployment rate and higher take home pays due to the recalibration of personal income tax rates from TRAIN would lead to a stronger consumer base.

"The market based depreciation of the peso also serves as natural protection against imports and will therefore encourage greater investments in manufacturing activities," Lopez said.

CNN Philippines' business producer Jil Danielle Caro contributed to this report.