Rising inflation is beginning to erode the country’s manufacturing recovery, as businesses grapple with higher costs while demand weakens, signaling growing strain across the broader economy.

Price growth accelerated sharply to 7.2 percent in April from 4.1 percent in March, pushing up expenses for fuel, electricity, transport, and basic goods. At the same time, factory activity slipped back into contraction, with the S&P Global Philippines Manufacturing PMI falling to 48.3 from 51.3 in the previous month after four consecutive months of expansion.

The combination is creating a challenging environment for producers already exposed to global volatility.

“Manufacturers are now navigating a difficult two-front challenge. On one side are rising costs for fuel, electricity, freight, imported inputs, and raw materials. On the other is softer demand as inflation reduces household purchasing power. Businesses are being squeezed from both ends,” said Elizabeth H. Lee, Federation of Philippine Industries (FPI) Chairperson.

The downturn comes as supply disruptions linked to tensions in the Middle East continue to ripple through energy markets, raising operating costs and dampening business sentiment.

“As long as external conflicts and supply disruptions persist, the operating environment becomes more difficult for economies like ours that are largely price-takers in global markets. Every prolonged shock eventually feeds into local costs, business confidence, and investment timing,” Lee added.

Firms are responding by tightening spending, revising investment plans, and shifting toward more flexible operating strategies to cope with uncertainty. Smaller enterprises face greater risks, as limited financial buffers leave them less able to absorb sustained increases in costs.

Despite these pressures, industry leaders pointed to underlying strengths that could support a rebound once external conditions stabilize.

“Still, there are reasons for cautious optimism. The Philippines continues to benefit from a large domestic consumer market, a young workforce, ongoing infrastructure upgrades, and a manufacturing base that remains fundamentally resilient—though increased manufacturing share in GDP would make the economy more resilient in the future. Periods of disruption also create opportunities for firms to improve efficiency, localize supply chains, accelerate automation, and strengthen competitiveness. Companies that adapt early can emerge stronger when conditions normalize,” she said.

Lee emphasized the need for coordinated action to address both immediate pressures and long-term competitiveness.

“Our message is one of urgency and partnership. Government, labor, and industry must work together to stabilize prices, preserve jobs, sustain investments, and restore manufacturing momentum. Competitiveness cannot be taken for granted—it must be protected through decisive action and strengthened for the shocks of tomorrow,” she added.

Industry groups also stressed that structural reforms remain critical, including reducing logistics costs, ensuring stable and affordable energy, strengthening domestic supply chains, and enforcing rules against smuggling and unfair trade practices.

“If these reforms are accelerated, the current challenge can also become a catalyst for a stronger, more self-reliant, and more competitive Philippine industrial sector and a more resilient economy,” Lee said.