Philippine Markets Newsletter

MONDAY MACRO: This index signals that the Philippines’ manufacturing sector is likely to experience further growth following looser pandemic restrictions

March 28, 2022

The manufacturing sector is one of the more important contributors to the Philippines’ economic growth, with total manufacturing value making up a fifth of the country’s GDP. It is therefore essential to monitor the indicators that measure the health of this industry.

There are two main indicators that do exactly that, one of which gives better insight into economic growth expectations.

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A strong manufacturing industry would generally indicate that an economy has robust growth prospects. Countries with robust manufacturing arms enjoy higher employment, improved innovation and R&D capabilities, and overall increased economic productivity.

In the Philippines, manufacturing comprises about a fifth of the Philippines’ GDP and more than half of the country’s industrial sector.

Consumer goods, particularly food manufacturing, has been the largest contributor to manufacturing value added, followed by capital goods and intermediate goods, of which electrical machinery and chemical production dominates, respectively.

Over the last three decades, however, manufacturing value added as a percentage of GDP has been on the decline. From the 1990s to the 2000s, the manufacturing sector was about a quarter of the Philippines’ GDP before tapering off to just 17%-20% in the 2010s until recently.

That said, manufacturing is still a significant portion of the country’s economic output. Because that is so, it’s important to look at indicators measuring the conditions of the manufacturing sector to gauge the healthiness of at least a portion of the economy.

One of these indicators is the Value of Production Index (VaPI), which measures the change in the monthly production values of manufactured goods in the country.

The last year saw major recovery signals in the manufacturing sector, with the VaPI growth rate inflecting positively to 154.3% in April 2021 from -74.2% in the month prior. The growth in VaPI continued its triple-digit growth until it reached a peak of 520%-530% levels in July and August 2021.

Since then, the growth in VaPI has declined significantly, but is still experiencing considerable double-digit growth, with the most recent data coming in at 21.3% in January 2022.

Much of this growth is attributable to upturns in 19 of the 22 manufacturing divisions, with tobacco production being the top contributor and wearing apparel experiencing the worst decline.

All said, while the VaPI is a great indicator for measuring current manufacturing levels, it doesn’t signal much about manufacturing levels going forward. For that, we turn to the Manufacturing Purchasing Managers’ Index (PMI).

This index is derived from monthly surveys of purchasing managers, and indicates whether the manufacturing industry is expanding (a manufacturing PMI above 50) or contracting (a manufacturing PMI below 50).

The Philippines’ manufacturing PMI has been relatively stable over the past year, with nine out of twelve readings over the past year indicating an expansion of the country’s manufacturing sector.

The lowest manufacturing PMI over the last year was in August, at 46.4, when the Delta variant caused a rising surge in COVID-19 cases. Since then manufacturing PMI has returned to levels above 50, with the most recent one coming in at a three-year high of 52.8 in February 2022.

Higher demand for domestic products increased new orders and expanded output levels for the month. Plus, with Metro Manila and many other areas across the country going into Alert Level 1, improvements in the manufacturing sector are likely to continue as looser restrictions ramp up demand and provide greater supply mobility.

While higher inflation levels and worker shortages are red flags that should be monitored closely, the manufacturing sector is set to experience solid growth going forward, especially as the economy continues to re-open.

About the Philippine Markets Newsletter
“The Monday Macro Report”

When just about anyone can post just about anything online, it gets increasingly difficult for an individual investor to sift through the plethora of information available.

Investors need a tool that will help them cut through any biased or misleading information and dive straight into reliable and useful data.

Every Monday, we publish an interesting chart on the Philippine economy and stock market. We highlight data that investors would normally look at, but through the lens of Uniform Accounting, a powerful tool that gets investors closer to understanding the economic reality of firms.

Understanding what kind of market we are in, what leading indicators we should be looking at, and what market expectations are, will make investing a less monumental task than finding a needle in a haystack.

Hope you’ve found this week’s macro chart interesting and insightful.

Stay tuned for next week’s Monday Macro report!



Angelica Lim
Research Director
Philippine Markets Newsletter
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