Philippine manufacturing activity surged to a two-and-a-half-year high in December last year, bolstered by strong holiday demand and lower borrowing costs.
The headline S&P Global Philippines manufacturing purchasing managers' index (PMI) rose to 54.3 in December, marking the 16th consecutive month of expansion and reaching its highest level since April 2022.
This key indicator of factory performance improved from 53.8 in November. Any reading above 50 indicates expansion.
Maryam Baluch, S&P Global Market Intelligence economist, noted that the sector posted sharp and substantial increases in new orders and output in December, with firms expanding their purchasing activity to meet production requirements.
"December highlighted a moderation in inflationary pressures, marking a shift from the spike observed in November," Baluch added. "In fact, cost burdens and output charges rose at historically muted rates."
The two largest components of the PMI calculation (the output index and new orders index) positively influenced the headline figure, with sharp expansions in both new orders and output being reported, supported by anecdotal evidence of robust underlying demand trends, product diversification, and new client acquisitions.
Additionally, there was a renewed rise in demand from international markets, marking the first increase in new export orders in five months.
Moreover, growth in production requirements spurred manufacturers to raise their purchasing activity, with input buying rising sharply and at a rate that was the strongest in nearly two years.
Meanwhile, Michael L. Ricafort, Rizal Commercial Banking Corporation chief economist, cited the Christmas and New Year holiday season as a key driver of the growth, with many businesses experiencing a seasonal surge in demand.
Ricafort also cited the impact of recent interest rate cuts by the Bangko Sentral ng Pilipinas, totaling 75 basis points in 2024, which have reduced borrowing costs for manufacturers. "Faster manufacturing PMI data would be a bright spot for the Philippine economy that could fundamentally lead to faster GDP [gross domestic product] growth," Ricafort said.
He added that the Corporate Recovery and Tax Incentives for Enterprises to Maximize Opportunities for Reinvigorating the Economy, or CREATE MORE law, signed in November, is expected to further boost the manufacturing sector by attracting more foreign direct investments.
Other factors that contributed to the PMI's strong performance include lower global crude oil prices and commodity prices, which have helped reduce input costs for manufacturers.
Likewise, Ricafort noted that easing inflation, coupled with further potential cuts in local policy rates, could further stimulate manufacturing activity in the coming months.
However, he also cautioned about potential headwinds, such as possible protectionist policies by US President-elect Trump and the risk of a trade war.
The Philippine manufacturing sector has demonstrated resilience, remaining in expansion mode for nearly all months since September 2021.