Philippines manufacturing returns to growth in May as PMI hits 50.8; Exports slide

The latest reading was still described as modest and historically subdued.

The Philippine manufacturing sector returned to growth in May after contracting in April, though rising cost pressures and accelerating job shedding tempered optimism over the nascent recovery.

The S&P Global Philippines Manufacturing Purchasing Managers’ Index climbed to 50.8 in May from 48.3 in April, crossing back above the 50-point threshold that separates expansion from contraction. Although the sector has now improved in five of the last six survey periods, the latest reading was described as modest and historically subdued.

Output rose at a solid pace — the strongest in three months and above the long-run series average — after growth had stalled in April. The upturn was underpinned by a fresh rise in new orders, which reversed a sharp decline the previous month. Manufacturers cited improved client demand and new customer wins as the principal drivers, though the gains were concentrated in domestic sales. Exports remained a significant drag, with new orders from abroad falling at the steepest rate since July 2020.

Despite the improved headline figure, conditions on the factory floor presented a more troubling picture. Supply-chain disruption intensified, with input delivery times lengthening to one of the greatest extents in nearly eighteen months as shipping delays prompted companies to consolidate orders in a bid to contain costs.

Cost inflation accelerated sharply. Manufacturers attributed rising fuel and raw material prices to the ongoing conflict in the Middle East, with the overall rate of input cost inflation running at its fastest pace since August 2022. Firms responded by passing higher expenses on to customers, lifting selling prices at the second-sharpest rate in three-and-a-half years.

Purchasing activity fell for a third consecutive month as manufacturers turned instead to existing inventories to meet production needs. Stocks of purchased inputs were drawn down at the steepest rate in six years, while stocks of finished goods declined for a second successive month.

Employment continued to contract, with the rate of job shedding the most pronounced in two years. Anecdotal evidence pointed to a combination of voluntary resignations and redundancies. Despite this, firms managed to reduce their backlogs of outstanding work, albeit only marginally.

Business sentiment, however, improved notably. Confidence in the twelve-month output outlook reached its highest level in eighteen months, with manufacturers expressing hope that demand conditions would strengthen.

“The latest PMI data for the Filipino manufacturing sector presented a mixed picture,” said Maryam Baluch, Economist at S&P Global Market Intelligence. “While manufacturers registered renewed growth in output and new orders, supply-chain disruption and cost pressures worsened as the Middle East conflict entered its third month. Both buying and hiring activity declined. However, firms remained increasingly optimistic about the future, hoping improved demand will support output growth. Indeed, sustaining this growth will depend on how certain customers feel in the economic and geopolitical outlook.”