Factory production rose 4.9 percent year-on-year in December 2015, on the back of strong domestic demand amid a low-inflation environment.
The Philippine Statistics Authority, which conducted the monthly integrated survey of selected industries, said the growth in the volume of production index in December 2015 improved from 4.4 percent in November and 4.7 percent recorded in December 2014.
“We must continue to help the manufacturing sector realize its potential by creating and strengthening linkages across all production sectors. This will enhance its capacity to absorb labor,” said Economic Planning Secretary Emmanuel Esguerra.
Data showed while the volume of production increased in December, the value of production index fell 2.6 percent from a year ago, pulled down by lower prices.
Beverages rebounded with a growth of 12 percent in December. Food production contracted 1.3 percent, as the agriculture sector was affected by the El Niño dry spell in the second semester of 2015.
“It is important to broaden the scope of supply and marketing linkages to dampen the impact of the El Niño which is reported to last until the second quarter of 2016. This includes encouraging more processing and better storage, packaging, and marketing of agricultural products to expand product range and reach a wider market,” Esguerra said.
He said the government should continue to improve infrastructure to support business activity and encourage businesses to reap the benefits of free trade agreements through aggressive information-sharing schemes and simplified bureaucratic processes.
“Smooth flow of goods can be achieved through adequate and resilient road networks, seaports and airports, and reliable telecommunication services. These improvements will enhance the capacity of local players to participate in global value chains,” said Esguerra.
Among intermediate goods, non-metallic mineral products posted a double-digit growth of 18.8 percent while paper and paper products rose 18.6 percent.
Petroleum continued to decline, posting a drop of 33.8 percent in terms of volume and 40.6 percent in terms of value.
Machinery, except electrical machinery, posted a double-digit growth of 17.8 percent and 22.2 percent in terms of volume and value of production. The transport sector also grew at a rapid pace of 13 percent and 9.9 percent in volume and value of production, following the attractive financing schemes for automotive sales.
Standard Charter economist Jeff Ng said the recent manufacturing data reinforced the latest gross domestic product growth of the economy as the domestic demand remained solid.
“Looking at the breakdown, production of higher value-added products like machinery, chemical and transport equipment look stronger than primary products such as petroleum products, textiles and printing,” Ng said in an email.
“For 2016, we may still see some downside risks on production as external demand remains weak. However, the Philippines’ domestic demand will continue to be the primary driver of production,” he said.
The average capacity utilization of firms maintained its growth at 83.5 percent, with basic metals posting the highest utilization rate of 88.5 percent.
“Despite the unfavorable economic global climate, the sector remains optimistic in 2016. With low and stable inflation and good employment opportunities, consumers have increased spending power, which strengthens domestic demand. The continued drop in petroleum prices will also keep operating costs minimal, and this is expected to boost the volume of production,” said Esguerra.