Manufacturing Growth in the Philippines Continues, but at a Slower Pace

The manufacturing sector in the Philippines grew at a slower pace in June 2023, according to the latest data from S&P Global. The S&P Global Philippines Manufacturing Purchasing Managers' Index (PMI) fell to 50.9 in June from 52.2 in May, remaining above the 50-point mark that separates growth from contraction.

The slowdown in manufacturing growth in the Philippines can be attributed to several factors. The country has experienced an increase in inflation over the past few months, with June marking a 40-year high. This surge in inflation has placed significant pressure on businesses' profit margins, prompting them to implement cost-cutting measures in response.

Bangko Sentral ng Pilipinas (BSP) has taken steps to address the inflation issue by raising interest rates on four occasions in 2022. While this move aims to curb inflation, it has resulted in higher borrowing costs for businesses. Consequently, accessing funds has become more expensive, impacting their ability to invest in expansion or new projects.

Moreover, the global economy has been experiencing a slowdown, leading to weakened demand for Philippine exports. As a result, the reduced global demand for goods manufactured in the Philippines has further contributed to the manufacturing growth slowdown.

Taken together, the convergence of increased inflation, rising interest rates, and weak global demand has presented challenges to the manufacturing sector in the Philippines, causing a deceleration in its growth.

Despite the slowdown in June, the manufacturing sector in the Philippines remains in a growth phase. The PMI has been above 50 for 17 consecutive months, and the sector is expected to continue to grow in the coming months. However, the pace of growth is likely to slow as the headwinds from inflation, rising interest rates, and weak global demand continue to weigh on the sector.