The country's factory output declined last month as economic uncertainties from Trump's tariffs linger and the workforce shrank, slowing the local manufacturing to 50.1 in May from 53 in April based on S&P Global Purchasing Managers' Index.

"The situation was further exacerbated by a deteriorating demand from foreign markets. As global trade tensions escalate, the outlook for overseas demand appears increasingly precarious," said S&P Global Market Intelligence economist Maryam Baluch.

S&P on Monday reported firms' export incomes declined to its lowest since November 2024.

However, Baluch said the manufacturing growth last month was nearly neutral as an above-50 mark indicates expansion while a lower mark shows contraction.

She said firms continued to purchase input materials as new orders came in, although at a slower pace.

"The promising growth observed at the beginning of the second quarter signaled a notable cooling in May. While new orders continued to increase, they did so at a slower pace, overshadowed by contractions in other areas," Baluch said.

Latest research from Chinabank revealed exports of semiconductors continued to decline in April, with a negative growth of 6.9 percent from 3.8 percent. Shipments of mineral products also decreased by 12.1 percent. However, exports of agricultural products jumped by 13.1 percent.

S&P said companies exhausted inventories for the first time in three months as delivery of new inputs were delayed.

However, companies also slowed production to some extent as their workforce shrank the fastest in 11 months after several employees resigned voluntarily.

Moving forward, Baluch said the Philippine manufacturing industry will likely sustain growth as the easing local inflation drives domestic demand for goods.

"On a brighter note, inflationary pressures remain modest and historically subdued, which could play an important role in supporting demand moving forward," she said.

"The stability of price pressures may also provide a necessary buffer against the challenges posed by a cooldown in new orders and external market uncertainties," Baluch continued.

Overall inflation slowed to 1.4 percent in April, the lowest level in more than five years based on data from the Philippine Statistics Authority.

Rizal Commercial Banking Corp. chief economist Michael Ricafort said overall inflation might accelerate to 2 percent levels from September to December.

Bank of the Philippine Islands chief economist Jun Neri projects an average overall inflation of 3 percent by year-end due to cheaper rice prices.