The Philippines' manufacturing sector started 2024 with a "muted improvement" in operating conditions due to a cooling demand in the overseas market, according to the latest Purchasing Managers' Index data released by S&P Global Market Intelligence.

While the country's headline PMI remained above the 50-mark, S&P Global Market Intelligence said on Thursday that the level slipped from 51.5 in December to 50.9 in January, the weakest expansion in five months.

The latest number suggests a weaker-than-average and only marginal overall growth.

"The turn of the year revealed a slight weakness in demand conditions," S&P Global Market Intelligence Economist Maryam Baluch said in an accompanying commentary.

"New orders and output growth eased, suggesting potential headwinds from global factors and sluggish external markets, particularly China," Baluch added.

Despite the cooldown in demand, manufacturers held steady on employment, marking a shift from the contractions seen in the previous two months. Additionally, companies increased their buying activity, anticipating future sales growth. Inventory levels also expanded in line with this optimistic outlook.

"While demand signals are concerning, manufacturers seem cautiously optimistic," Baluch noted. "Nearly half expect growth in output over the coming year, and their increased buying activity suggests they are preparing for it."

Furthermore, inflationary pressures eased in January, with both input and output price inflation slowing down compared to December. This could provide some relief to manufacturers facing cost pressures and help them remain competitive.

Nonetheless, manufacturers showed optimism as they increased their purchases of inputs, expecting higher sales in the upcoming months. Over the previous six months, buying activity increased at the quickest rate yet.

In terms of employment, hiring levels were stagnant following two months of job losses.

S&P Global reports that while some businesses reported staffing reductions and resignations in January, these were somewhat offset by businesses that hired staff in anticipation of an increase in new orders.

"Moreover, looking forward, global headwinds and sluggish demand from external markets, especially China, are likely to weigh on the Filipino manufacturing sector," Baluch said.

"On the flipside, other evidence from the latest PMI data, such as the rise in buying activity and the building of stocks, indicates that manufacturers anticipate continued growth in the coming months. Additionally, historically subdued inflationary pressures will also assist the sector, as firms seek to price competitively," she added.