Manufacturing in the Philippines grew at a slower pace in both value and volume terms in October on elevated inflation and interest rates, data from the Philippine Statistics Authority (PSA) show.
The growth in the value of production index (VaPI) eased to 1.3 percent year-on-year in October from 9.6 percent in September and 14.5 percent in October 2022. The volume of production index (VoPI) growth also decelerated to 1.7 percent in October from 9.9 percent in September and 6.7 percent a year ago.
“The slower manufacturing may have been weighed by continued pickup in inflation though at a slower pace, leading to higher input costs of manufacturers,” Rizal Commercial Banking Corp. (RCBC) chief economist Michael Ricafort told Manila Standard in a Viber message.
Ricafort said manufacturing was partly affected by higher US, global and local interest rates that increased the borrowing costs of manufacturers, thereby reducing new investments and expansion projects.
He said the risk of US and global economic slowdown or even risk of US recession would have also slowed down global manufacturing and global trade, including exports. He said this could have “weighed on the local manufacturing and export sector.”
Ricafort said the decline in global crude oil prices could help further ease inflation globally and locally toward central bank targets. “It would reduce input costs of manufacturers and would also support a pause in Fed and local policy rates by 2024…,” Ricafort said.
Inflation in the Philippines in November fell to a 20-month low of 4.1 percent from 4.9 percent in October on slower increases in the prices of food and non-alcoholic beverage
The PSA said the slower increment in the annual growth of VaPI in October 2023 was primarily brought about by the double-digit annual drop in the manufacture of beverages industry division at 26.3 percent.
The manufacture of beverages contributed 46.5 percent to the downtrend of VaPI for the manufacturing sector in October. Of the 22 industry divisions for the manufacturing section, manufacture of beverages was the fourth industry division with the highest weight in the computation of VaPI.