Tariff threat, bad weather gnaw on factory output
Factory output stumbled in July, breaking a three-month streak of gains, as a burst of front-loaded orders meant to dodge looming US tariffs tapered off while relentless monsoon rains soaked plants and disrupted production activities.
A monthly survey of selected industries showed that the volume of production index (VoPI), a measure of manufacturing activity, had contracted by 1.1 percent year-on-year, the first decline since March’s 1-percent drop, the Philippine Statistics Authority (PSA) reported on Tuesday.
This brought the seven-month output growth to a measly 0.4 percent.
As it is, the sudden reversal underscored both the fragility of the recent manufacturing rebound and the vulnerability of industry to forces far beyond the factory floor.
John Paolo Rivera, a senior research fellow at state-run think tank Philippine Institute for Development Studies (PIDS), said the decline may have reflected “front-loading fatigue” ahead of the Aug. 1 US tariff deadline, as well as the impact of recent weather disturbances.
“The severe monsoon rains, compounded by typhoons, disrupted production and logistics in Luzon severely affecting sites tied to electronics, agri-processing and goods movement,” Rivera said.
In its report, the PSA pinned the slowdown on weaker factory gains across key sectors. Growth in food production, once the main driver, cooled to 16.5 percent from 22.4 percent. Electronics manufacturing also lost steam, rising 5 percent after a 7.3-percent jump in the previous month, while transport equipment output slowed to 9.3 percent from 13 percent.
Moving forward, some pockets of weakness may have lingered in August, if advance estimates by S&P Global are to be believed. The Philippines’ Purchasing Managers’ Index (PMI), a measure of the manufacturing sector’s health, stood at 50.8 last month, barely changed from July’s 50.9.
While still above the 50-level separating growth from contraction, S&P said the August PMI reading was “historically subdued and only marginal overall.”
PIDS’s Rivera warned of risks that must be closely watched.
“The key risks to monitor include ongoing weather disturbances late in the year and the real-time impact of the new tariffs on export competitiveness,” he said.
“Looking ahead, I expect output to recover gradually, provided supply chains stabilize and production schedules adjust to the new tariff regime. Manufacturers are likely shifting to reshoring inventories and adapting to a new price environment,” he added.
