Local manufacturers registered a slight expansion in operating conditions in July as the prolonged coronavirus pandemic continued to drag down domestic demand and production levels, the latest IHS Markit survey showed.

IHS Markit Philippines Manufacturing Purchasing Managers’ Index settled at 50.8 last month, still above the 50.0 no-change threshold that separates expansion from contraction. However, the growth was slower than 50.4 percent in June.

Shreeya Patel, IHS Markit economist said on Monday, August 2, that while coronavirus cases have moderated “somewhat” in July from earlier on in the year, the numbers were still far from under control causing some restrictions to persist.

“Domestic demand must improve throughout the second half of the year to help underpin growth in 2021,” Patel said.

In July, factories operating conditions improved across the sector, with declines in output and new orders persisting.

“That said, the rate of job shedding eased to the softest since March, while firms continued to add to their pre- and post-production inventory holdings in anticipation of greater demand,” IHS Market said.

Vaccination efforts also fuelled an improvement in output expectations, IHS Markit said, adding that respondents often mentioning hopes of a return to normality over the coming year.

Turning to prices, the rate of input price inflation was robust at the start of the third quarter. Raw material shortages and the introduction of value added tax (VAT) to some goods exerted upward pressures on costs. Consequently, firms continued to raise their selling prices.

As virus-related restrictions persisted, which contributed to weak domestic demand, and a general reluctance to spend in July, IHS Markit said.

“That said, the decline in new order volumes was broadly similar to that seen in June, and only marginal overall,” IHS Markit said.

In contrast, international demand for Filipino manufactured goods rose for the third successive months, and at a modest pace amid improvements in global economic conditions.

However, production levels fell for the fourth month running, though at only a fractionally quicker pace to that seen in June.

According to panel members, firms struggled to obtain new orders, which was largely linked to the pandemic and weak domestic demand.

Moreover, workforce numbers were cut for the seventeenth successive month in July. Voluntary resignations were often reportedly not replaced, although some panellists attributed the fall in employment to lower output levels.

Signs of spare capacity were again evident in July following another solid decline in backlogs. Incomplete work has now fallen in each month since March 2016.

"Looking ahead, sentiment regarding output expectations over the next 12 months improved to a four-month high,” IHS Markit said.

“The vaccination programme often underpinned hopes of a return to normality over the next year. New product launches, and expectations of a recovery in client demand were also cited by panellists in July,” it added.