FPI: Manufacturing momentum slows as costs climb

Philippine manufacturing posted strong growth in August, but rising operating costs and a softer September outlook are raising concerns over the industry’s ability to sustain its momentum, according to Federation of Philippine Industries (FPI) Chairwoman Elizabeth H. Lee.

Factory output expanded 11.8 percent in August, while electronics production surged 32.1 percent. Eighteen of 22 manufacturing sectors also recorded growth during the month.

“Growth is real, but momentum is becoming more fragile,” Lee said.

The manufacturing sector’s outlook weakened in September, with the purchasing managers’ index falling to 49.6 from August’s nine-year high of 54.9. Output, new orders and export orders all declined.

“One weak month is not a trend,” Lee said. “The real risk is if softer demand lasts long enough to hit production, investment and jobs.”

Lee said the pressure on businesses is increasingly coming from operating costs rather than access to credit. Bank lending grew 11 percent in August, while loans to manufacturers increased 6.1 percent.

At the same time, inflation accelerated to 7.2 percent in September, with rice prices rising 20.3 percent and transport costs increasing 14.6 percent. The latter does not yet reflect fare increases implemented on 28 September.

“The issue isn’t just the price of money. It’s the price of doing business,” Lee said. “Many firms cannot pass these costs on to consumers, so the squeeze lands on margins.”

The impact varies across industries. Electronics remains strong, while garments, footwear and toys face a 12.5-percent US tariff and competition from neighboring economies.

Lee also said the wage increase would benefit about 1.1 million workers but noted that inflation among the poorest 30 percent of households reached 9 percent in September.

“Higher wages, higher productivity and lower structural costs: that is how wage growth lasts,” Lee said. “The best wage policy is one that raises both incomes and productivity.”

With a super El Niño expected, Lee called for coordinated planning among government, utilities, agriculture and industry to protect water, power and food supplies.

On Pax Silica, she said the initiative should be measured not only by the number of investors attracted but by the local capabilities created through investments.

“The real win is not the investment we attract, but the capability we build,” Lee said.