Philippine Manufacturing Rebounds in 2021

Philippine factory activity has overcome its 10-month lapse following the outbreak of the coronavirus 2019 (COVID-19) pandemic in the country, according to a survey released by global information services provider IHS Markit Ltd. last Monday.

IHS Markit’s report showed that the Philippines Manufacturing Purchasing Managers’ Index (PMI) hit 52.5 in January 2021, comfortably above the neutral 50-point mark and even 0.4 points higher than its performance in the same period last year. The IHS Markit Philippines PMI assesses the industry’s economic conditions and indicates the direction of change from the previous month. 

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Renewed consumer demand drives manufacturing output

According to the report, the positive change was driven by improving customer demand which led to an uptick in manufacturing output and new orders, as well as higher purchasing activity. However, the report also denoted a contraction in orders from overseas – a residual effect of pandemic restrictions in key export destinations. Survey responses showed that supply chain disruptions continued in January, with “supplier delivery times lengthening to the greatest extent in four months.” Businesses also experienced cost pressures last month, citing adverse weather conditions as a contributor to higher raw material costs. 

Overall, the outlook for the next 12 months remains optimistic as the demand environment supports the rise in production. “An increase in purchasing activity and stocked inventories was [also] a positive sign that manufacturing companies expect demand to grow over the coming months,” said IHS Markit Economist Shreeya Patel.

Industrial parks bolster economic growth

Manufacturing remains to be an integral sector to the economy with the industry contributing to 30.17% of the country’s GDP as of 2019, according to figures from Statista. Growth of the manufacturing industry is a key priority in the Department of Trade & Industry’s (DTI) development plans — the government envisions to strengthen the capacity of industries, upskill the workforce, and further establish the country as a link in regional production networks and global value chains. 

Companies are able to maximize special tax incentives and freer movement of goods when set up in Philippine Economic Zone Authority (PEZA)-established economic zones. As of 2017, 25% of all operating ecozones nationwide focus on manufacturing and agro-industry. 

PEZA Director General Charito B. Plaza, in an article by BusinessMirror published in June 2020,  advised that 67% of the new ecozones approved and proclaimed by the President will be located in Luzon. The development of ecozone-townships not only supports the expansion of the manufacturing sector and ancillary industries but also boosts the economic dynamism of the cities and towns that host them.

“Creation of public ecozone apt to the area benefits host LGUs in terms of industrialization, transfer of technology, land development, creation of jobs which in turn had a multiplier effect in the area,” said Plaza.

Commercial real estate in provincial cities seen to expand

In its latest report titled What’s Next? A Forecast on PH’s Residential and Commercial Real Estate in 2021,  Lamudi saw demand for commercial properties in cities with technoparks –  such as those located in Southern Luzon – show impressive growth throughout last year in spite of the pandemic. This is backed by the influx of employees to ecozones in Laguna and Silang, and the development of infrastructure projects providing easier access to these areas. 

The growing interest for spaces in these provincial cities near Metro Manila is attributed to the lower price per square meter compared to central business districts, in addition to the attractive business environment for warehousing and logistics in these cities. Lamudi sees demand for commercial real estate in provincial cities with technoparks moving upward over time, and the completion of infrastructure projects improving accessibility to these areas to “play a bigger role in unlocking land values.” 

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After a year that saw shrinkages in consumer loans and markedly weaker household spending, the recent spike in purchasing activity in the manufacturing sector and growing demand from property seekers may be indicative of recovering consumer confidence.  In response to the January manufacturing PMI performance,  DTI Secretary Ramon Lopez cited the importance of revitalizing domestic demand and empowering local manufacturing firms to seize it.

“We are encouraged by the signs of economic recovery that we are seeing, not only in the January manufacturing PMI but also those that point towards longer-lasting economic rebound. Clearly, the whole-of-government efforts on the calibrated and safe reopening of the economy was key to this,” said Lopez.

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Article and Photo originally posted by Lamudi last February 8, 2021.

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