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Factory slump continues for 8th straight month as output falls in October

By Marissa Mae M. Ramos, Researcher

The country’s manufacturing product contracted for the eighth straight month in October, the Philippine Statistics Authority (PSA) reported on Friday.

Preliminary results of the PSA’s Monthly Integrated Survey of Selected Industries (MISSI) showed factory output, as measured by the Volume of Production Index (VoPI), declined by 11.3% year on year in October.

The latest result is faster than the revised 8.6% drop in September and the 5% contraction recorded in October last year. It also marked the steepest decline since the 13.4% drop in July.

Factory output has been falling since March, when parts of the country were placed under a strict lockdown due to the coronavirus pandemic.

Year to date, factory output shrank by 11.9% on average versus the 8.5% slump recorded in 2019’s comparable 10 months.

The PSA attributed the faster decline in October to reductions in the indices of 15 industry groups. Twelve industry groups saw double-digit drops, led by petroleum products (-99.1%), printing (-53.4%), and tobacco products (-48.7%).

A similar composite indicator in the PSA’s MISSI, the value of production index (VaPI) likewise slid by 14.2%, deeper than the 12.4% recorded in the previous month. It also posted its eighth straight month in contraction and was the largest since the 16.7% fall in July.

Average capacity utilization — the extent to which industry resources are used in the production of goods — averaged 67.2% from 69.2% the previous month. Only seven of the 20 sectors registered capacity utilization rates of at least 80%.

In an e-mail, University of Asia and the Pacific Economist Victor A. Abola said the continued decline could still be attributed to the extended lockdowns imposed by the government to contain the pandemic.

“[T]he weakness of the economy may be seen in the slower print (2.9%) for heavy-weighted food manufacturing compared to September (4.7%). The larger drop in printing at -53.4% in October from -34.1% a month earlier reflects the ‘austerity measures’ of firms and consumers for the Christmas season,” Mr. Abola said.

The economist also saw that the closure of refineries had a “big negative impact” on industrial output.

The VoPI and VaPI for petroleum products both declined by around 99% with average capacity utilization rate at 0.14% for October. It has since settled at this level since July following a capacity utilization rate of 55.04% back in June.

In a phone interview, Federation of Philippines Industries (FPI) Chairman Jesus L. Arranza said manufacturing continues to be on a downturn as lockdown restrictions continue to affect demand and the ability of employees to come to work.

Both Messrs. Arranza and Abola expect manufacturing production to continue its decline for the rest of the year.

Mr. Abola attributed his outlook to continued weakness in demand with export firms to likely perform better as the recovery in large markets such as China and the US “are much stronger” compared to the domestic market.

For Mr. Arranza: “There will not be a bounce-back by the end of the year. It will take some more time, probably by the second quarter of next year depending on the availability of a vaccine.”

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