Local factory activity ended on a positive note last year as both production and new orders expanded for the fourth consecutive month in December along with the marginal upturn in employment, the latest survey from S&P Global revealed.

The Philippines’ S&P Global manufacturing purchasing managers' index (PMI) continued to post above the 50.0 no-change mark that separates growth from contraction, extending the current sequence of improving operating conditions that began in February.

Edging upwards for the second consecutive month, the headline index rose to a six-month high of 53.1 in December from 52.7 in the previous month.

In a statement, Maryam Baluch, S&P Global Market Intelligence economist said on Tuesday, Jan. 3, that the latest data signalled sustained growth across the domestic manufacturing sector.

“The release of pent-up demand because of the Covid pandemic continued to help the recovery of the manufacturing sector this year. Furthermore, the latest upturns in output and new orders were stronger than the survey averages,” Baluch said.

According to S&P Global, domestic demand was the main driving force behind the latest upturn in incoming new business, as foreign orders contracted for the tenth month running.

Increased business requirements also promoted companies to resume their hiring activity in December, following the first fall in head-counts in eight months in November.

While the return to growth was clearly a positive indication of improvement across the Filipino manufacturing sector, the rate of job creation was only fractional overall, &P Global noted.

Meanwhile, pre-production inventories increased at a softer pace than compared to that recorded in November.

In addition, the accumulation of post-production inventories was the joint-weakest in the current 11-month sequence of expansion, suggesting firms were more inclined to rely on inventories to meet demand.

“Recent months have signalled some easing of price pressures but rates of inflation remain sharp and an ongoing threat to demand,” S&P Global said.

The pace of increase in cost burdens was the slowest for three months, whilst firms raised their selling prices at the softest rate for a year in December amid efforts to drive sales.

Beluch said challenges in the form of supply-chain disruption and inflationary pressures remain an ongoing concern to the sector and could potentially threaten growth prospects in 2023.

While the Bangko Sentral ng Pilipinas has taken measures to curb inflation, global supply chain delays and material shortages remain a much more complex issue to solve.

“Nonetheless, goods producers remain strongly upbeat for the year-ahead, banking largely on domestic demand to help maintain growth,” Beluch said.

Firms remained optimistic in the outlook for output for the year-ahead. Firms were hopeful that demand will remain sturdy and grow amid a stable economic environment. Additionally, some firms also have investment plans.

That said, the degree of confidence weakened to a four-month low in December as rising market competition and inflation dampened expectations.