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Electronics boom helping Philippine factories weather energy crisis—think tank
Electronics boom helping Philippine factories weather energy crisis—think tank
In a report on Monday, June 1, Capital Economics senior Asia economist Gareth Leather said manufacturing activity across Asia remained resilient in May despite the sharp increase in global oil prices since the conflict in the Middle East began.
“The manufacturing PMIs for May suggest that the drag from higher energy prices is being offset by booming electronics demand, although price pressures across the region remain elevated,” Capital Economics said. Semiconductor and electronic products account for more than half of Philippine exports.
The think tank noted that manufacturing purchasing managers’ index (PMI) readings improved in the Philippines, South Korea, Taiwan, and Vietnam last month, with all four economies posting readings above the 50-point threshold that separates expansion from contraction.
For the Philippines, the latest PMI data from S&P Global showed manufacturing activity returned to growth territory last May, with the headline index rising to 50.8 from 48.3 in April.
The May reading reversed the contraction recorded last April and indicated a fresh improvement in operating conditions, supported by renewed growth in output and new orders.
S&P Global earlier explained that improved client demand and new customer wins helped lift overall new business in May, encouraging Philippine manufacturers to raise production after output growth stalled in the previous month.
Capital Economics pointed to the latest data showing that South Korean semiconductor exports surged by 163 percent year-on-year last month and now account for about two-fifths of the country’s total exports, up from only 15 percent in early 2023.
“It is a similar story elsewhere in the region, with exports of electronics now growing at a faster pace than during the pandemic period,” the think tank said.
However, Capital Economics cautioned that the impact of higher energy prices continues to be felt throughout the region.
The think tank pointed out that output and input price components of manufacturing PMIs remain elevated by historical standards and are now at levels comparable to those seen following Russia’s invasion of Ukraine in 2022.
For the Philippines, higher fuel costs have been a major driver of inflation.
Headline inflation accelerated to a more than three-year high of 7.2 percent in April, exceeding the government’s two- to four-percent target range of annual price increases deemed manageable and supportive of economic growth.
The spike was mainly attributed to higher oil prices and transport costs stemming from disruptions to global energy supplies following the outbreak of the Middle East conflict.
Over the weekend, the think tank projected that Philippine inflation likely eased slightly to seven percent in May, although it would remain well above the Bangko Sentral ng Pilipinas’ (BSP) target band. The PSA’s May inflation report will be out on Friday, June 5.
“Inflation data for May, due over the coming days, are likely to show that headline rates increased again, and this supports our view that most central banks in the region will raise interest rates further over the coming weeks,” Capital Economics said.