Moody’s sees more factory contraction

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President Duterte is given a tour of the Solar Philippines Factory in this Aug. 23, 2017 file photo. HANDOUT PHOTO FROM SOLAR PHILIPPINES

MANILA – Factory output likely contracted for a second straight month in August as high base effects kicked in, Moody’s Analytics said, even as it clarified that it expects expansion to resume shortly.

The unit of Moody’s Corp. and sister firm of global debt watcher Moody’s Investors Service said it expects volume of industrial production to have contracted by two percent in August, a reversal from the year-ago 13.3% increase and steeper than the 1.1% decline recorded in July.

“The Philippines’ industrial production likely remained downbeat in August and fell by 2.0% year-on-year following a 1.1% drop in July,” Moody’s analysts said in a report released over the weekend.

“High base effects are at play, as domestic demand is doing well and global manufacturing demand is upbeat,” it explained, adding that “[t]he near-term outlook is for continued expansion.”

The Philippine Statistics Authority is scheduled to report official August manufacturing data on Tuesday.

Last year’s third quarter saw three consecutive months of double-digit increase in volume of production: 12.1%, 13.3% and 11.2% in July, August and September, respectively.

Moody’s Analytics said production decline may be temporary, as current indicators point to sustained growth in the industrial sector.

The monthly survey on business conditions in manufacturing which IHS Markit conducts for Nikkei, Inc. bared a similar picture.

The Nikkei Philippines Manufacturing Purchasing Managers’ Index (PMI) logged 50.6 in August, marking the fourth straight month of a slowdown. Still, the figure remained above the 50 mark, meaning business for factories continued to expand.

Vietnam, Singapore and Indonesia took the lead among Southeast Asian countries that month.

The Philippines’ PMI reading recovered to 50.8 in September, making the local manufacturing sector second to Vietnam in Southeast Asia.

Moody’s said the latest manufacturing data show the sector has not benefited from the weaker peso, which should have translated to bigger production and sales abroad.

Manufactured items contribute more than 80% to total shipment abroad of Philippine goods in any given month.

“The weak peso hasn’t provided the expected lift to exports and manufacturing yet, but rather has undesirably raised the import bill,” the global analytics unit said.

The peso averaged at P50.8747 against the dollar in August, already beyond the P48-50 assumption set by the central bank earlier this year.