Following the pickup in manufacturing in April, Philippine factory growth in May slowed to an almost stagnant pace as production declined due to waning demand for new orders from foreign markets and the sharpest drop in employment in the sector in nearly a year.

Data from S&P Global revealed that the month of May posted “a broadly stagnating picture in the Filipino manufacturing sector,” which showed a “setback to growth momentum built in April.” Growth in April was a sharp rebound from the nearly four-year low seen in March.

“After April marked a solid revival in the health of the Filipino manufacturing sector, the latest data signaled a notable reversal,” S&P Global said in its latest purchasing managers’ index (PMI) report, released Monday, June 2.

According to the report, the Philippines’ PMI—an overall single-figure indicator of how the manufacturing sector is performing—fell to 50.1 in May from 53 in the previous month. The report said this signals “a broad stagnation in operating conditions.”

“Output fell into contraction territory while new order growth waned, with the downturn in demand from foreign markets also weighing on total new sales,” it said, noting that this came after steady export sales in the two previous months.

It said that the rate of contraction was “fractional,” but it was notably the strongest in six months, or since November last year.

The decline in production came alongside a fresh drip in employment as manufacturing companies often delayed hiring replacements after workers resigned. “The rate of job shedding was marginal, but the strongest in nearly a year,” S&P Global noted.

The report cited the lack of workers as a major factor behind the renewed rise in unfinished work among producers in the country.

Maryam Baluch, economist at S&P Global Market Intelligence, said that “while new orders continued to increase, they did so at a slower pace, overshadowed by contractions in other areas.” These areas were output, employment, and the inventories of both purchases and finished goods.

Baluch further said that this situation was “further exacerbated by a deteriorating demand from foreign markets, with May witnessing a sharper drop in new export orders.”

“As global trade tensions escalate, the outlook for overseas demand appears increasingly precarious,” the economist noted.

On the other hand, Baluch said that the modest rise in consumer prices this year could support the demand in the next few months. Softer inflation could also provide “a necessary buffer against the challenges posed by a cooldown in new orders and external market uncertainties.”