Philippine factory activity falls to 3-month low in March amid spike in energy costs

By Justine Irish D. Tabile, Senior Reporter

PHILIPPINE FACTORY activity in March slumped to a three-month low in March as output and new orders declined amid the war in the Middle East, S&P Global said on Wednesday.

S&P Global Philippines Manufacturing Purchasing Managers’ Index (PMI) slipped to 51.3 in March from 54.6 in February. This was the weakest PMI reading in three months or since the 50.2 recorded in December.

A PMI reading above 50 denotes better operating conditions than in the preceding month, while a reading below 50 shows deterioration.

Despite the sharp slowdown in growth, March marked the fourth straight monthly improvement in the Philippine manufacturing sector.

“The war in Middle East weighed on the performance of the Philippines manufacturing sector, March PMI data showed,” Maryam Baluch, economist at S&P Global Market Intelligence, said in the report.

“With vast majority of the country’s oil supply coming from the Gulf countries now under threat, the President has declared a national energy emergency. Filipino manufacturers are exposed to shocks in oil and fuel prices rippling through global markets, as signaled via notable hikes in costs and charges, and softer demand conditions,” she added.

The Philippines is under a one‑year state of national energy emergency as it faces heightened risk of fuel supply disruptions due to the US-Israel war on Iran which started in early March. As a net oil importer, the Philippines remains highly exposed to global price swings.

Some Association of Southeast Asian Nations (ASEAN) countries also saw muted manufacturing activity in March, as the region’s PMI slipped to 51.8 in March from 53.8 in February.

The Philippines lagged behind Thailand (54.1) and Myanmar (51.5), but ahead of Vietnam (51.2), Indonesia (50.1) and Malaysia (50.7).

For the Philippines, S&P Global said the slower growth momentum for output and new orders were largely due to customer uncertainty amid the Middle East war, citing anecdotal evidence.

“Dampening the pace of increase in total new orders was a fresh decline in new export sales. While the latest downturn was modest, it marked the first month of contraction since last December. Firms noted that the war in the Middle East had led to weaker demand from foreign clients,” it said.

Philippine firms adjusted their production levels, but the pace of growth was “much softer” than the expansion in February. Output was the weakest in three months.

“Reports of higher prices for gas and fuel as well as material shortages led to a further deterioration in vendor performance and, more importantly, renewed increases in operating expenses and factory gate charges,” S&P Global said.

Manufacturers also paused purchasing activity in March, just below the neutral 50.0 mark, which helped ease some pressure on supply chains.

“Higher energy (including fuel and gas) costs and material scarcity, stemming from the war in Middle East resulted in both costs and charges rising in March. This followed slight reductions in the month prior. Moreover, the rates of inflation across both price gauges were historically sharp,” S&P Global said.

In March, job creation continued for a third month in a row, but the rate of growth was marginal and the weakest in three months.

However, Filipino manufacturers were confident that production will pick up in the next 12 months, as they remain hopeful that demand conditions will improve and drive growth.

“The duration and intensity of the war will directly impact the sector’s trajectory in the coming months, as inflationary pressures constrain sales and pricing power,” said Ms. Baluch.

Reyes Tacandong & Co. Senior Adviser Jonathan L. Ravelas said that the March PMI data signals a temporary soft patch rather than a slowdown.

“The decline was mainly driven by weaker domestic demand, cautious consumer spending, and higher cost pressures, which prompted firms to scale back new orders and production,” he said in a Viber message.

“That said, business sentiment hasn’t collapsed. If inflation eases and demand normalizes, we could see PMI stabilize or even rebound next month. For now, it’s more of a pause than a downturn — and companies are clearly staying cautious,” he added.